Bubble Company

AAA

DEFINITION of 'Bubble Company'

A company whose valuation greatly exceeds that suggested by its fundamentals. The first well-documented bubble company was the South Sea Company, which caused the South Sea Bubble in 1720. A bubble company arises when speculators continuously buy up the stock in expectation of increased future earnings. However, bubble company shares often become worthless once the speculative bubble bursts.

INVESTOPEDIA EXPLAINS 'Bubble Company'

One common characteristic of a bubble company is scandal. For example, during the dotcom bubble many internet-based firms traded at high multiples under the expectation of generating high levels of future growth. When earnings did not meet analysts' expectations, many firms began to cook the books in order to manipulate their bottom lines. Once the internet bubble burst, the individual bubble companies either went bankrupt or experienced massive drops in their share prices.

RELATED TERMS
  1. Tulipmania

    Tulipmania was the first major financial bubble. Investors began ...
  2. Mississippi Company

    An example of a famous speculative bubble that occurred from ...
  3. Speculative Bubble

    A spike in asset values within a particular industry, commodity, ...
  4. Dutch Tulip Bulb Market Bubble

    One of the most famous market bubbles of all time, which occurred ...
  5. Housing Bubble

    A run-up in housing prices fueled by demand, speculation and ...
  6. Asset Liquidation Agreement (ALA)

    A contract between the Federal Deposit Insurance Corporation ...
Related Articles
  1. How The Power Of The Masses Drives The ...
    Active Trading Fundamentals

    How The Power Of The Masses Drives The ...

  2. 5 Steps Of A Bubble
    Economics

    5 Steps Of A Bubble

  3. Investing In Fads
    Personal Finance

    Investing In Fads

  4. Sorting Out Cult Stocks
    Active Trading

    Sorting Out Cult Stocks

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center