What Are 'Death Knell Stocks'

Death knell stocks are the shares of a publicly traded company that is on the verge of insolvency or bankruptcy. A death knell stock typically trades for less than $1. Death knell stocks are considered a very high risk investment.

Sometimes companies can recover from such a poor financial position, but even if they do, they still may not be stable or be expected to last in the long run. Investors in death knell stocks may not earn a return on their investments and may even lose their principal.

BREAKING DOWN 'Death Knell Stocks'

Despite their low share price, death knell stocks should not be confused with penny stocks – the latter are typically micro-cap stocks that trade over the counter and have low volume. Penny stocks often have a higher level of volatility that results in a higher potential reward and a higher level of risk.

The fundamentals of a death knell stock become weak and long term viabililty looks minimal. A historical example of a death knell stock is Lehman Brothers' stock, which collapsed in the blink of an eye in 2008 as the company went under.

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