Cult Stock

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.

BREAKING DOWN '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. Cult Brand

    A product or service that has an energetic and loyal customer ...
  2. Story Stock

    A stock that is trading markedly higher on optimistic expectations ...
  3. Speculative Stock

    A stock with a high degree of risk. A speculative stock often ...
  4. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
  5. Stock Market

    The market in which shares of publicly held companies are issued ...
  6. Accumulation Area

    A price range in which investors typically purchase shares of ...
Related Articles
  1. Markets

    Sorting Out Cult Stocks

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

    The Lowdown On Penny Stocks

    Think penny stocks will make you rich? If you don't understand the risks, you could end up penniless.
  3. Investing

    Advising FAs: How To Explaining Stocks to a Client

    Without a doubt, common stocks are one of the greatest tools ever invented for building wealth.
  4. Investing

    Introduction To Growth Investing

    There are principles and techniques that are applicable for many different types of investors and growth strategies.
  5. Investing

    What Is A Dividend?

    Income investors love them and growth investors rarely expect them, but just what are dividends? Learn the story behind these payouts and why they are (or aren't) offered to investors.
  6. Investing

    Five Investing Pitfalls To Avoid, According to Investor's Business Daily

    Common sense or common folly? Discover some approaches to circumventing typical stumbling blocks on the road to profitable investing.
  7. Markets

    The Alphabet Soup Of Stocks

    Are the countless stock categories leaving you puzzled? Here we help you sort through the confusion.
  8. Investing

    How The Stock Market Works

    When you buy a stock, you buy a piece of a company.
  9. Investing

    When To Short A Stock

    Learn how to make money off failing shares.
  10. Trading

    The Art Of Cutting Your Losses

    Taking corrective action before your losses worsen is always a good strategy. Find out how to keep your capital losses small and let your winners run.
RELATED FAQS
  1. Why is an increase in capital stock on a company's balance sheet a bad sign for stockholders?

    Understand what capital stock represents for a company and understand the significance for investors when a company initiates ... Read Answer >>
  2. How does a beginner investor seek and evaluate markets and companies worth investing ...

    I'm a beginning investor. I'm struggling in learning how to research markets and companies to invest in. What are key indicators ... Read Answer >>
  3. How would I calculate the valuation of a firm based on the revenue and investments?

    The company got an investment of 30 million over the last 3 years. Their annual revenue is about $800,000 per annum and the ... Read Answer >>
  4. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  5. What is the difference between the equity market and the stock market?

    Discover the basic information about the equity, or stock, market and the two primary classifications of equities that are ... Read Answer >>
  6. What's the difference between a capital market and the stock market?

    Learn about the differences between stock market and capital market. Identify several important stock markets and understand ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center