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

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center