Story Stock

AAA

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.

INVESTOPEDIA EXPLAINS '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. Tenbagger

    An investment that appreciates to 10 times its initial purchase ...
  2. Abnormal Return

    A term used to describe the returns generated by a given security ...
  3. Fully Valued

    A stock whose price analysts believe reflects the market's recognition ...
  4. Lemon

    A very disappointing investment. A lemon is an investment in ...
  5. Overbought

    1. A situation in which the demand for a certain asset unjustifiably ...
  6. Overvalued

    A stock with a current price that is not justified by its earnings ...
Related Articles
  1. Is Your Psyche Ready For A Bull Market?
    Active Trading Fundamentals

    Is Your Psyche Ready For A Bull Market?

  2. Great Expectations: Forecasting Sales ...
    Fundamental Analysis

    Great Expectations: Forecasting Sales ...

  3. Stock Basics Tutorial
    Investing Basics

    Stock Basics Tutorial

  4. 5 Questions To Ask When You're In A ...
    Active Trading

    5 Questions To Ask When You're In A ...

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center