Don't Blame Traders: Stocks Falling for a Reason

Just as individual stocks can surge 10%, 25%, or even higher in a short period of time, they can also fall just as far and just as quickly. Oftentimes, a big drop in share price signals a material defect or new risk in the company, while other times it's simply a pullback after a long run-up.

Understanding the reason behind a big fall makes all the difference in what investors should do, whether they own the plunging shares or not. Fortunately, Motley Fool CAPS is a great resource to help drill down on what's behind big price drops.

Is the sky falling?
CAPS contains more than just the opinions of a crowd; its best-performing investors' opinions do more to shape each company's rating than the picks of their poorer-performing peers. This allows investors to intelligently use the collective wisdom of more than 83,000 CAPS investors -- and their respective track records -- to make better investing decisions, even if that decision is "do nothing."

To put this in practice, we'll screen for companies with a stock that has been trimmed by at least 20% in the past month, a market cap of greater than $100 million, and a beta of less than 3. That'll keep us out of the mud filled with gyrating penny stocks.

Here's a sample of stocks our screen returned.

Let's add a little more color to recent circumstances and find out why some of these stocks have been beaten so badly.

Bad Apple! Bad!
While many think Apple CEO Steve Jobs has the Midas touch, it must not work on shares that have been whacked by a fourth in the past month. But you have to expect that what many have trumpeted as the best stock to own in 2008 would be an easy bear target.

There's been no single cause assigned to Apple's current red trend, but plenty of issues are perceived as working against the company. For starters, the larger economic picture looks bleaker by the day, and many analysts figure a souring economy means fewer iPods flying off the shelves. Faced with losing a home, consumers may also opt to put off purchasing a few iTunes tracks to add to their collections -- or so the thinking goes.

Then there's the case of the missing iPhones -- analysts don't like the gap they see between Apple's sales numbers and those that partner AT&T put forth. Fans of Apple also put a huge amount of stock in new product announcements at the annual MacWorld event, which left many wish lists unfulfilled this year.

Wrap it all together with a pricey valuation at the end of 2007, and you've got the recipe for a pullback. But the quick slide in shares has many CAPS investors (and a few Fools) singing a bullish tune. Indeed, many of the negative comments from CAPS investors center on valuation alone and concede to the company's impressive cash-flow generation. Believing solid growth still lies ahead, 11,983 out of the 13,088 investors rating Apple today see the company outperforming the S&P going forward.

Cheap consultation
Talk about being in a funk -- IT consulting firm Perficient has not only dropped more than 30% in the past month, but also more than 50% in the past five months. The company traded as high as a pricey 34 times expected 2007 earnings back in August, and that high number probably weighed on the mind of investors owning shares. Today, it trades at a more palatable forward price-to-earnings ratio of 11.4.

Management continues to be upbeat about the future, as are a large contingent of CAPS investors rating the company. Of the 389 rating the company, 381 see a bargain at this level and have voted for Perficient to outpace the market in the future.

Ultimately, whether you believe the reasoning behind a fall in any stock, your own research is more important than collective opinions. But these collective opinions can quickly focus an individual's due diligence and even point out potential pitfalls you may not have seen.

Add your take on these or any of the 5,300 stocks that 83,000-plus investors have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.

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