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. Zombies

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

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

    A scheme that attempts to boost the price of a stock through ...
  4. Dotcom

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

    The act of trading in an asset, or conducting a financial transaction, ...
  6. Fundamentals

    The qualitative and quantitative information that contributes ...
Related Articles
  1. Buying Into Corporate Research & Development ...
    Markets

    Buying Into Corporate Research & Development ...

  2. Sorting Out Cult Stocks
    Active Trading

    Sorting Out Cult Stocks

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

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

  4. Chasing Down Biotech Zombie Stocks
    Investing

    Chasing Down Biotech Zombie Stocks

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center