What is In the Penalty Box

In the penalty box is a phrase referring to a company whose stock has plummeted with no rebound in sight.

BREAKING DOWN In the Penalty Box

A company in the penalty box is often one that has received some bad news, insuring the future lethargy of its stock. An example of this is a drug company with a key drug that doesn't get FDA approval. These types of companies will often stay in the penalty box for a long period of time, unable to gain traction in the market, sell their shares or gain investor trust in their product in order to raise capital or stocks. The term is widely used even today among both professionals and consumers in the financial worlds to describe stocks that are not predicted to gain traction in their value.

The term in the penalty box comes from the sport of hockey. In hockey, when a player commits a rules infraction, he or she is put in the penalty box near the player's bench. For a designated period of time, typically two minutes, a player is out of action and his or her team must play shorthanded. As a result, most teams go on the defensive and aim only to stay even to prevent the opposition from scoring versus scoring themselves.

Stocks that are in the penalty box may act the same way. Although stocks in the penalty box might not be able to be on the offensive and gain value or earn a profit return, they may just aim to stay afloat on the market or even attempt to fight off the negative factors that are reducing its value.

Example of In the Penalty Box

An example of how the phrase In the Penalty Box might be used could be the example that CNBC used to describe financial stocks back in 2016. In a November 2016 article, financial experts described how financial stocks had previously been in the penalty box for quite some time after banks had held on to their capital reserves in order to be more liquid. However, as the interest rates rose, regulation loosened, and the economy grew, leading to investment experts to declare that financial stocks were finally out of the penalty box. And what is the opposite of being in the penalty box? According to some financial experts, it’s about stocks that are in the sweet spot instead.