DEFINITION of Strong Sell
A strong sell is a type of stock trading recommendation given by analysts for a stock that is expected to dramatically underperform when compared with the average market return and/or return of comparable stocks in the same sector or industry. It is an emphatic negative comment on a stock's prospects.
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BREAKING DOWN Strong Sell
A strong sell is one of the strongest recommendations that an analyst can give to investors to sell a stock and generally indicates that the underlying company and/or relevant market conditions will be unfavorable for the stock in the subsequent period of time.
How "Strong Sell" Recommendations Affect Companies
The meaning of ratings issued by analysts can vary from firm to firm, making it necessary to see documentation that clearly details the intent of any recommendation. What one firm calls a "strong sell" might carry the same meaning as the following recommendations: "significantly underperform," "swap," "long-term avoid," or "sell."
Furthermore, because the findings and opinions of analysts can widely vary, a "strong sell" recommendation from one firm might not coincide with the recommendations for the same time frame on the same stock from another firm. When recommendations are released, a research report may be included to provide corroborating evidence for the new status. In the case of a "strong sell" rating, analysts are expected to outline the underlying fundamentals that led to such a downgrade.
With a "strong sell" rating, an analyst essentially is recommending that the entire stock be removed from shareholders’ portfolios to mitigate further losses. Even if the company is generating revenue, there may be other factors that could impair its forward growth prospects. The impact of these issues could lead to diminishing value on company shares with no swift recovery projected in the short-term trading.
Inciting actions that can lead to such a recommendation can include recent news from the company, such as missed goals, unexpected losses, or regulatory rulings that affect the core operations of the business, coupled with projections on future earnings. A "strong sell" recommendation can take into account how the company is positioned relative to its industry peers; market changes that may affect the company’s operations, liquidity, and capitalization; and actions competitors are taking.
If a company has not presented a plan of action to allay such issues, or if there are other factors that would preclude a near-term recovery, analysts might issue a strong sell recommendation, especially if it is believed the company will underperform for 12 to 24 months.