Zombies

AAA

DEFINITION of 'Zombies'

Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to the high costs associated with certain operations, such as research and development. Most analysts expect zombie companies to be unable to meet their financial obligations.

Also known as the "living dead" or "zombie stocks".

BREAKING DOWN 'Zombies'

Because a zombie's life expectancy tends to be highly unpredictable, zombie stocks are extremely risky and are not suitable for all investors. For example, a small biotech firm may stretch its funds extremely thin by concentrating its efforts in research and development in the hope of creating a blockbuster drug. If the drug fails, the company can go bankrupt within days of the announcement. On the other hand, if the drug is successful, the company could profit and reduce its liabilities. In most cases, however, zombie stocks are unable to overcome the financial burdens of their high burn rates and most eventually go bankrupt.

Given the lack of attention paid to this group, there can often be interesting opportunities for investors who have a high risk tolerance and are seeking speculative opportunities.

RELATED TERMS
  1. Graveyard Market

    A prolonged bear market where existing investors want to get ...
  2. Voodoo Accounting

    Creative rather than conservative accounting practices. Voodoo ...
  3. Tombstone

    A written advertisement placed by investment bankers in a public ...
  4. Burn Rate

    The rate at which a new company uses up its venture capital to ...
  5. Jekyll and Hyde

    1. A slang term referring to the strengths and weaknesses of ...
  6. Quadruple Witching

    The expiration date of various stock index futures, stock index ...
Related Articles
  1. Options & Futures

    Haunting Wall Street: The Halloween Terminology Of Investing

    Beware of zombies and Jekyll and Hyde companies! Read about the spooky terms circulating Wall Street.
  2. Active Trading

    Sorting Out Cult Stocks

    Is that crazy product going to be the next big thing? Learn how to evaluate these companies here.
  3. Investing

    Chasing Down Biotech Zombie Stocks

    Find out whether you have "living dead" stocks lurking in your portfolio.
  4. Investing Basics

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  5. Investing Basics

    What's a Price-Taker?

    Price-taker is an economic term describing a market participant who has no effect on overall market activity.
  6. Investing Basics

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  7. Investing News

    The Brief: Where Is the Bottom?

    Where is the market going today after yesterday's bumpy ride?
  8. Investing

    Finding Value in the Selloff Rubble

    Globally and in the United States, stocks are now in correction mode, with the recent erosion in equities in emerging markets and Europe in a bear market.
  9. Investing Basics

    6 Smart Strategies to Invest Your Extra Cash Now

    The world's stock markets are shaky, to say the least. Should you hold onto your cash or bargain hunt?
  10. Investing Basics

    What is a Public Company?

    A public company has sold stock to the public through an initial public offering (IPO) and that stock is currently traded on a public stock exchange.
RELATED FAQS
  1. What happens to the stock of a public company that goes bankrupt?

    Occasionally, publicly listed companies go bankrupt. The company's shareholders, depending on the type of stock they hold, ... Read Full Answer >>
  2. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  3. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  4. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  5. What are the requirements for being a Public Limited Company?

    The requirements for an entity to be considered a public limited company (PLC) include registration requirements, establishing ... Read Full Answer >>
  6. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!