2-Star Stocks Poised to Plunge: Lexicon Pharmaceuticals?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, biotech company Lexicon Pharmaceuticals (NAS: LXRX) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Lexicon's business and see what CAPS investors are saying about the stock right now.

Lexicon facts

Headquarters (Founded)The Woodlands, Texas (1995)
Market Cap$577 million
IndustryBiotechnology
Trailing-12-Month Revenue$2.8 million
ManagementCo-Founder/CEO Arthur Sands
Co-Founder/Chief Scientific Officer Brian Zambrowicz
Return on Equity (Average, Past 3 Years)(50.4%)
Cash/Debt$143.7 million / $25.2 million
CompetitorsAthersys
Deltagen
Exelixis

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 14% of the 286 members who have rated Lexicon believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, All-Star zzlangerhans, wrote that the bear case all boiled down to price:

Lexicon is what I like to call a "Buttercap" stock. You see the share price under [$1.50] and wonder why the company is valued so low. Then you look at the pipeline and it has some potential. ...

You're kind of liking what you see so far, and you're thinking about making your move when the stock suddenly turns around from the bar and ... UGH! You see the market cap of [$500 million]. That's due to a bloated 338M share count, the result of massive dilution in 2010.

The recent 143M share rights offering won't make the share count or market cap any prettier. The way I've seen these events play out before is a continuing erosion in share price followed by a reverse split, followed by more dilution. So next time you see a low share price with a decent pipeline, make sure you aren't investing in a company where everything looks good but her cap.   

What do you think about Lexicon, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Want to see how well (or not so well) the stocks in this series are performing? Follow the newTrackPoisedToCAPS account.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Exelixis. Motley Fool newsletter services have recommended buying shares of Exelixis. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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