Story Stock

DEFINITION of 'Story Stock'

A stock whose value reflects expected future potential (or favorable press coverage) rather than its assets and income. A story stock trades markedly higher on optimistic expectations about its potential profits down the road. A story stock’s valuations are generally out of line with its fundamentals, since investors are willing to pay a hefty premium for the stock to participate in its future prospects. Most, but not all, story stocks tend to be clustered in dynamic sectors such as technology or biotechnology, since the lure of owning a piece of a company that discovers the cure for cancer or invents a new fuel source is one that few investors can resist.

BREAKING DOWN 'Story Stock'

Story stocks can often be recognized by the substantial amount of media coverage they garner. Because of their near-constant presence in the public eye, a story stock may attract heavy trading volume for many months, until a new contender displaces it in the public imagination. Although a few story stocks go on to achieve great success, most fail to live up to their promise.

The abundance of story stocks depends on prevailing market conditions. Story stocks are commonplace during strong bull markets and flourish during such periods, but are relatively rare when bearish sentiment grips the markets.

The industry sector that generates the most story stocks depends on the investment theme that investors are enamored with at a particular time. During the 1990s, for instance, technology and dot-coms spawned countless story stocks in what was arguably the golden age for them. In the 2003-07 bull market, a period of skyrocketing commodity prices and triple-digit crude oil, most story stocks were either resource-based companies or in the alternative energy space.

While a typical story stock has numerous supporters, its rapid rise and rich valuations also tend to attract short-sellers who are skeptical about the company’s long-term prospects. As a result, a story stock will usually have above-average short interest, which contributes to its significant price volatility.
 

RELATED TERMS
  1. Story Paper

    A security or investment of any kind that has very unique or ...
  2. Headline Risk

    The possibility that a news story will adversely affect a stock's ...
  3. Cult Stock

    A classification describing stocks that have a sizable investor ...
  4. Equity Market

    The market in which shares are issued and traded, either through ...
  5. High Flier

    A stock that has seen its share price - and subsequently its ...
  6. Stock Market

    The market in which shares of publicly held companies are issued ...
Related Articles
  1. Investing

    3 Ways To Tell If Your Stock Has Bottomed

    No one can call stock bottoms with absolute certainty, but there are some common trends that appear when stocks are about to hit bottom.
  2. 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.
  3. Investing

    Buy High, Sell Much Higher

    Value investing may seem fool-proof, but it carries more risk than you might know.
  4. Markets

    Deconstructing Two Notorious Story Stocks (VRX, CMG)

    Valeant and Chipotle are once-respected brands that have been undermined by scandals, but traders aren't complaining.
  5. Markets

    Income, Value and Growth Stocks

    Investors who buy stocks generally seek one of three criteria: undervalued holdings, growth potential or steady income. The characteristics of stocks in each of these categories differs accordingly.
  6. Investing

    How The Stock Market Works

    When you buy a stock, you buy a piece of a company.
  7. Trading

    January Effect Revives Battered Stocks

    Make sure you buy in low to ride this phenomenon for all it's worth.
  8. Managing Wealth

    Volatile Stocks: Great, If You Have The Stomach

    Volatile stocks can be a lucrative opportunity for short-term traders. For buy-and-hold investors, it's a much different story.
  9. Investing

    Five Minute Investing: Replacing Stock Market Myths

    In the introduction to "Five Minute Investing", I mentioned that the ideas and approaches developed in this book would be unorthodox. In this chapter, I hope to point out and correct a few of ...
  10. Managing Wealth

    4 Things That Make a Stock a Risky Bet

    Risk is everywhere and when it comes to stocks it can take many forms. From price risk to volatility risk, there’s a lot investors have to look out for.
RELATED FAQS
  1. 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 >>
  2. How does the performance of the stock market affect individual businesses?

    Learn how stock markets affect individual businesses by influencing consumer spending levels and affecting the way companies ... Read Answer >>
  3. What types of securities perform best in a bull market?

    Read about the types of securities, such as stocks or ETFs, that tend to post the largest gains when the economy is enjoying ... Read Answer >>
  4. If an investor is short a dividend-paying stock on record date are they entitled ...

    Learn what short sellers must do when they are short a dividend-paying stock on record date. Read Answer >>
  5. What is "hammering"?

    "Hammering" is a situation where large sale orders are placed against a particular stock because investors believe that the ... Read Answer >>
  6. Why don't stocks begin trading at the previous day's closing price?

    Most stock exchanges work according to the forces of supply and demand, which determine the prices at which stocks are bought ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center