Fire Sale

DEFINITION of 'Fire Sale'

Selling goods or assets at heavily discounted prices. Fire sale originally referred to the discount sale of goods that were damaged by fire; it may now refer to any sale where the seller is in financial distress. In the context of the financial markets, fire sale refers to securities that are trading well below their intrinsic value, such as during prolonged bear markets.

BREAKING DOWN 'Fire Sale'

Securities that are on "fire sale" may offer compelling risk-reward payoffs for value investors, since further declines in these securities may be limited, while the upside potential could be quite substantial.

While there are no fixed valuation metrics that indicate when a stock is trading at a fire sale price, it may be considered to be at such a price when it is trading at valuations that are at multi-year lows.


For example, a stock that has consistently traded at an earnings multiple of 15 could be at a fire sale price if it is trading at an earnings multiple of 8. Of course, this assumes that the business fundamentals for the stock are still relatively unchanged and have not deteriorated markedly.

RELATED TERMS
  1. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  2. Bargain Sale To A Charitable Organization

    The sale of a good or service to a charitable organization for ...
  3. Undervalued

    A financial security or other type of investment that is selling ...
  4. Value Trap

    A stock that appears to be cheap because the stock has been trading ...
  5. In The Penalty Box

    A phrase referring to a company whose stock has plummeted with ...
  6. Value Stock

    A stock that tends to trade at a lower price relative to it's ...
Related Articles
  1. Investing Basics

    Stock Basics Tutorial

    If you're new to the stock market and want the basics, this is the tutorial for you!
  2. Active Trading

    Warren Buffett: How He Does It

    We look at the Sage of Omaha's methodology for evaluating value stocks.
  3. Fundamental Analysis

    When To Sell Stocks

    Buying at the right price determines profit, but selling at the right price locks it in.
  4. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  5. Investing News

    Is the White House too Optimistic on the Economy?

    Are the White House's economic growth projections for 2016 and 2017 realistic or too optimistic?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Economics

    Can the Market Predict a Recession?

    Is a bear market an indication that a recession is on the horizon?
  8. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  9. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  10. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
RELATED FAQS
  1. How can I hedge my portfolio to protect from a decline in the food and beverage sector?

    The food and beverage sector exhibits greater volatility than the broader market and tends to suffer larger-than-average ... Read Full Answer >>
  2. How attractive is the food and beverage sector for a growth investor?

    The food and beverage sector is attractive for a growth investor. The sector's high degree of volatility means it tends to ... Read Full Answer >>
  3. What techniques are most useful for hedging exposure to the insurance sector?

    Investing style determines the best hedging techniques for the insurance sector. This sector comprises three segments, two ... Read Full Answer >>
  4. What is the formula for calculating the receivables turnover ratio?

    To calculate a company's accounts receivable turnover ratio, start with the net receivable sales for a given time period, ... Read Full Answer >>
  5. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
  6. What options strategies are best suited for investing in the retail sector?

    Retail is a broad sector whose seven discrete segments all exhibit greater volatility than the broader market. The sector ... Read Full Answer >>
Hot Definitions
  1. Short Selling

    Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is ...
  2. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  3. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  4. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  5. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  6. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center