Why a Falling Stock Isn’t Always Cheap
A stock dropping 50% does not automatically make it a bargain.
If a stock falls from $100 to $50, don’t just ask, “How much can it rebound?”
Ask why it fell.
Before buying the dip, look at things like:
Key price levels — Where are support and resistance?
Volume — Is there strong buying interest, or is selling pressure continuing?
Fundamentals — Are revenue, earnings and cash flow improving or deteriorating?
Valuation — Is the stock actually cheap relative to the business, or just cheaper than before?
Debt and liquidity — Can the company comfortably fund its operations?
The original thesis — Has something fundamentally changed about the company?
Technical analysis can help you understand what the market is doing.Fundamental analysis can help you understand what the business is worth.
Neither should be ignored when making an investment decision.
A stock being down 50% only tells you where it has been.
It doesn’t tell you where it should be.
