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.

BREAKING DOWN '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. Housing Bubble

    A run-up in housing prices fueled by demand, speculation and ...
  5. Dutch Tulip Bulb Market Bubble

    One of the most famous market bubbles of all time, which occurred ...
  6. Regional Asset Liquidation Agreement ...

    An agreement between an asset manager and the Federal Deposit ...
Related Articles
  1. Active Trading Fundamentals

    How The Power Of The Masses Drives The Market

    Market psychology is an undeniably powerful force. Find out what you can do about it.
  2. Economics

    5 Steps Of A Bubble

    Bubbles are deceptive and unpredictable, but by studying their history we can prepare to our best ability.
  3. Personal Finance

    Investing In Fads

    From high-flying to fading fast, fads can mean big money for nimble investors.
  4. Active Trading

    Sorting Out Cult Stocks

    Is that crazy product going to be the next big thing? Learn how to evaluate these companies here.
  5. Active Trading Fundamentals

    Mad Money ... Mad Market?

    Jim Cramer's spirited recommendations are a case study in irrational market behavior.
  6. Professionals

    Holding Out for Capital Gains Could Be a Mistake

    Holding stocks for the sole purpose of avoiding short-term capital gains taxes may be a mistake, especially if all the signs say get out.
  7. Economics

    Is The EU Holding Germany Back?

    As Germany agrees to initiate bailout talks with Greece once again, could all of the EU's economic turmoil result in Germany being better off alone?
  8. Economics

    The Biggest Items Obama Is Still Missing From His Mandate

    Learn how the biggest items missing from Obama's mandate include various forms of tax reform and closing the Guantanamo Bay prison in Cuba.
  9. Economics

    A Comparison Between a Default and a Collapse

    Is the Greek default similar to the Lehman Brothers collapse?
  10. Investing Basics

    Who Is The Next Greece?

    Several EU countries are on the potential candidate list, but some municipalities in the U.S. look far more like Greece. Could they be the “next Greece”?
RELATED FAQS
  1. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  2. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  3. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  4. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
  5. What measures could the U.S. Government take to prevent another crisis similar to ...

    Some of the measures that the U.S. government can take to prevent another crisis similar to the savings and loan (S&L) ... Read Full Answer >>
  6. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  3. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  4. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  5. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!