DEFINITION of 'Torpedo Stock'

A stock that has fallen substantially in value and that looks like it will continue to fall in value in the foreseeable future. This name refers to this type of stock's similarity to a battleship after it has been struck by a torpedo: it goes down fast and continues to sink until hits the bottom.

BREAKING DOWN 'Torpedo Stock'

A change in a business's underlying fundamentals can turn a company's stock into a torpedo stock. For example, investors see earnings as a good indicator of a business' success, as even a gradual rate of earnings growth indicates that a business is doing well. However, quarter after quarter of declining earnings with no end in sight can be enough to cause investors to "jump ship" as a stock's price starts to plummet.

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