Cult Stock

AAA

DEFINITION of 'Cult Stock'

A classification describing stocks that have a sizable investor following, despite the fact that the underlying company has somewhat insignificant fundamentals. Typically, investors are initially attracted to the company's potential and accumulate positions in speculation that its potential will be fulfilled, providing the investors with a substantial payout.

INVESTOPEDIA EXPLAINS 'Cult Stock'

While most of these cult stocks promise they will be the next big story after they make a new discovery or get the newest contract from the government, most do not provide investors with anything other than the story. Furthermore, these stocks typically generate very little, if any, revenue at all.

For example, many micro-cap biotech stocks are cult stocks. While they promise that they are going to be working on a miracle compound or drug, most of them do not have any source of income as they slowly burn away their initial capital in research and development.

However, some cult stocks do occasionally make good on their stories to become successful. For example, Research in Motion was once a widely followed cult stock that had a great story that attracted many investors, but no revenue. Fortunately, its BlackBerry PDA device became a runaway hit, which elevated the cult stock to its multibillion market capitalization status.

RELATED TERMS
  1. Dotcom

    A company that embraces the internet as the key component in ...
  2. Speculation

    The act of trading in an asset, or conducting a financial transaction, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent ...
  4. Volume

    The number of shares or contracts traded in a security or an ...
  5. Pump And Dump

    A scheme that attempts to boost the price of a stock through ...
  6. Fundamentals

    The qualitative and quantitative information that contributes ...
RELATED FAQS
  1. Why did dotcom companies crash so drastically?

    The craze of the dotcom bubble and the flood of capital that came with it led to many back-of-the-napkin business models ... Read Full Answer >>
  2. What are the most important equity market indexes?

    The most important equity market indexes are the S&P 500, Nasdaq Composite and Russell 2000. These indexes in total provide ... Read Full Answer >>
  3. What is considered a good turnover ratio for a mutual fund?

    What is considered a good turnover ratio for a mutual fund depends on the fund's composition and structure, its stated investment ... Read Full Answer >>
  4. Is it more beneficial to invest in a blue chip stock or a penny stock?

    Penny and blue-chip are terms used to describe a stock's valuations and statures. Penny stocks are generally the stocks of ... Read Full Answer >>
  5. What is the difference between a penny stock and a small cap stock?

    A penny stock and a small-cap stock represent the shares of a company with low market capitalizations. However, there is ... Read Full Answer >>
  6. How can I tell whether a particular small cap stock has a positive investment outlook?

    The investment outlook for a small-cap stock is determined by operational outlook and current stock price. The operational ... Read Full Answer >>
Related Articles
  1. Markets

    Buying Into Corporate Research & Development (R&D)

    Investors take note: companies that cut research and development are in danger of saving today but losing big tomorrow.
  2. Active Trading

    Sorting Out Cult Stocks

    Is that crazy product going to be the next big thing? Learn how to evaluate these companies here.
  3. Investing

    The Ins and Outs Of In-Process R&D Expenses

    Are these charge-offs fair accounting or earnings manipulation? Learn more here.
  4. Investing

    Chasing Down Biotech Zombie Stocks

    Find out whether you have "living dead" stocks lurking in your portfolio.
  5. Mutual Funds & ETFs

    Top 3 ETFs For Investing in China

    Discover the top three China ETFs. Chinese stocks tend to be quite volatile, presenting opportunities for savvy investors, given the country's high growth rate.
  6. Economics

    Who Are the Baby Boomers?

    Baby boomer is a descriptive term for a person who was born between the years 1946 and 1964.
  7. Investing Basics

    S&P 500 Vs. Russell 2000 ETF: Which Should You Get?

    We look at the differences of investing in the S&P 500 vs. the Russell 2000 exchange-traded fund, and when to choose the one over the other.
  8. Investing Basics

    Understanding Related-Party Transactions

    In business, a related-party transaction refers to a transaction where parties on both sides have a common interest or relationship.
  9. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  10. Stock Analysis

    Is Smaller Better When Investing Overseas?

    When it comes to global stocks think small (and not in a market-cap sense). Smaller developed nations have outperformed larger rivals by a big margin.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
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!