5 Superball Stocks

In my recurring Fool column "Get Ready for the Bounce," we search for future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a fallen stock to bounce back?

Nope. Sometimes stocks fall hard, in far less time than a year. And like a superball dropped from the balcony, the harder they fall, the higher they bounce. Today, we'll look at a few equities that've suffered dramatic drops over the past week. With a little help from the 170,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you.

Companies are selected by screening on finviz.com for abrupt 5% or greater price drops over the past week. Recent price and 52-week-high data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
By and large, U.S. stocks performed well last week, as the S&P 500 posted a 2.7% gain … but not everyone was so lucky. If you owned any of the five stocks named above, you're significantly poorer for it today. So what went wrong?

In some cases the answer was obvious. Take Sprint Nextel, for example. When AT&T (NYSE: T) bid to buy T-Mobile, it threatened to make Sprint a very distant third-place player in a mobile market dominated by AT&T and Verizon (NYSE: VZ). While Sprint doesn't yet meet the definition for a basket case that GE Chairman Jack Welch once laid out ("When you're No. 4 or 5 in a market, when No. 1 sneezes, you get pneumonia. When you're No. 1, you control your destiny. The No. 4s … have difficult times"), it's getting awfully close.

And speaking of basket cases, did you happen to catch the earnings news at Best Buy and Cree? Cree warned Wednesday that sales will fall far short of projections in the fiscal Q3 just ended, dropping the stock 12% in a day. Meanwhile, Best Buy confirmed that its own Q4 was marred by weak same-store sales, eroding market share, and declining profits. Maybe you'd best not buy that one, either.

On the other hand, not all of these wounds were self-inflicted. In Cell Therapeutics' case, not a single thing went wrong last week. Instead, the company suffered a steep sell-off on Friday -- prompted, it appears, by a single throwaway line in a column from TheStreet.com instructing the company to "put down the beakers and scram." News value: zero.

Similarly, the panic at Ebix originated with a salvo fired by an anonymous SeekingAlpha.com poster on Thursday. In a three-part magic act, the self-described "Copperfield Research" made 24% of Ebix's market cap vanish into thin air.

Poof!
Was the selloff justified? Many Fools think not. All-Star investor torpex77 quickly jumped in with a declaration that he's "playing the bounce from the short-attack," while CAPS member createyourluck reminded investors that whatever the critics say about Ebix, "business performance will rule the day in the long term."

And according to CAPS All-Star jackjjr, "performance" is what Ebix does best. The company is "making the insurance industry more efficient and creating a moat around their product … a recipe for future growth."

Presto, change-o, grow-o!
Most analysts agree. On average, the consensus on Wall Street is that Ebix can probably keep its earnings growing at the rate of 15% per year for the next half-decade or so. But will that be enough to support the stock price, much less provide the kinetic energy for a big bounceback?

I'm not so sure. Listen, folks -- I don't know whether the allegations of "suspiciously low sales," "manipulative metrics," and shenanigans in the CEO's office are as bad as Copperfield makes them out to be. What I do know is that at 15.5 times earnings today, Ebix only looks fairly priced after Thursday's selloff. Whether you deem 12% sales growth last quarter "suspicious" or not, I doubt that 15% long-term growth is fast enough to make this 15 P/E stock a bargain. In fact, considering the company actually brings in about 14% less free cash flow than it reports as net income, I'd go so far as to say the stock still looks expensive.

Time to chime in
Of course, that's just my opinion. While I'm not quite as fervent a detractor as Copperfield, neither am I as optimistic about Ebix's chances as many of our CAPS members seem to be -- and not nearly as enthused about the stock as the hypergrowth investors at Motley Fool Rule Breakers, who have recommended Ebix to our members.

But that's just my opinion, and I could certainly be wrong. If you have an opinion on Ebix, here's your chance to shout it out and put Copperfield in its place. Head over to Motley Fool CAPS, and tell us what you think.