5 Superball Stocks

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When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The following equities suffered dramatic drops over the past week. With help from the 170,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back.

It's been a while, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:

 

CAPS Rating
(out of 5)

Interactive Intelligence (NAS: ININ) (34%)$27.91****
Amazon.com (NAS: AMZN) (12%)$217.32***
Whirlpool (NYS: WHR) (43%)$51.80***
DeVry (NYS: DV) (42%)$38.86**
Netflix (NAS: NFLX) (72%)$84.14**

Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
The Dow Jones Industrial Average (INDEX: ^DJI) gained 3.6% last week, but not everyone was so lucky. In the chart above, you see five names out of the more than 1,000 stocks that lost value last week. Five names that each lost 5% (or more) of their market cap. So what went wrong?

In a word: earnings. Netflix's already battered stock price took a dive Tuesday morning after the company reported an 800,000-person march away from its subscription service. DeVry shares did almost as bad, falling 18% after the for-profit educator missed earnings badly after hours on Tuesday.

Whirlpool shareholders got put through the spin cycle Friday after reporting another earnings miss amid stiff competition from rival appliance makers from Korea. That same day, Amazon got sent downward for reporting profits that my fellow Fool Chris Hill termed less-than-awesome.

Reviewing our CAPS scorecard, it appears few investors are excited to own any of these stocks, even at today's "new and improved" prices, giving 'em only two- and three-star ratings (out of a possible five). But don't lose heart, opportunistic investor. CAPS members do see at least one value lodged in today's bargain bin.

Interactive Intelligence
Like the other stocks named above, InIn got dinged last week for an earnings report that missed consensus estimates. But really, the company's numbers weren't all that off from where they were supposed to be. Earnings of $0.29 per share missed the goal by just $0.02. Revenues fell only $1.4 million short of analysts' $53.5 million target. 

Ace CAPS investor EnigmaDude calls this an "over-reaction to earnings miss." Long-term investors, he thinks, should focus on how InIn is "extending [its] leadership position," having just signed "the largest deal in the company's history during this third quarter, a $10 million five-year cloud contract with a peak of 4,200 agent seats and additional opportunities for expansion."

I agree. Selling for a market cap just the other side of $525 million, InIn shares today cost 32 times earnings. On the one hand, that's more expensive than other companies in this industry. Cisco (NAS: CSCO) shares, for example, fetch only 16 times earnings, while the average price across the business software and services industry is closer to 24 times.

On the other hand, though, if you back out the $69 million in cash on InIn's balance sheet (which is debt-free, by the way), the valuation drops to a more palatable 26 times earnings. Price the company on its cash profits, and the multiple drops even more -- to an enterprise value-to-free cash flow ratio of only 24, which is right in line with the company's long-term projected growth rate.

Foolish takeaway
Now consider further that although analysts generally give Interactive Intelligence credit for only 24% long-term growth, historically, the company has done better than that. Over the past five years, InIn's growth rate has averaged more than 28% per year.

In short, based on expectations today, I think the shares are at worst fairly valued. And if the company can get back to the growth rates it's shown itself capable of hitting in years past, these shares could be capable of a real super-bounce.

Want to learn the big-picture story behind our enthusiasm for cloud-computing stocks like Interactive Intelligence? Read all about it in our new -- and free! -- report:The Two Words Bill Gates Doesn't Want You to Hear....

At the time this article was published Fool contributorRich Smithdoes not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 354 out of more than 180,000 members.The Fool has adisclosure policy.The Motley Fool owns shares of Cisco Systems. The Fool has created a bull call spread position on Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Cisco Systems, Netflix, Interactive Intelligence, and Amazon.com.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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