Why Did My Stock Just Die?

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Positive economic news outweighed any other financial data that might present greater risk. Though your stock took a nosedive, don't panic. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can make excellent buying opportunities. Here are a couple of the latest cratered stocks that could provide a possibility for profit:

Stock

CAPS Rating (out of 5)

Tuesday's Change

Majesco Entertainment (NAS: COOL) ***(13.8%)
EasyLink Services (NAS: ESIC) *****(11.4%)

Just yesterday the Dow surged 218 points, or 1.7%, as U.S. retail sales rose strongly in February. So stocks that went down by large percentages anyway are pretty big deals.

That's going to leave a mark
When dance fitness craze developer Majesco Entertainment scaled back estimates for company performance earlier this year, I surmised the Zumba phenomenon had run its course. With nearly three-quarters of its revenues tied to the series, it was only a matter of time before the biscuit wheels fell off the gravy train. Even with new titles and new iterations of Zumba based on Microsoft's (NAS: MSFT) Kinect technology, the company saw limited upside potential so I closed out my outperform CAPScall on Majesco.

The Fool's Anders Bylund, however, sees opportunity in yesterday's earnings-release-related drop that reflected Majesco's prior dour outlook. He views the higher revenue results that crushed analyst expectations, as well as its ability to generate higher operating cash flows as a sign that it remains a healthy game developer.

There is something to be said for its revised outlook, which firmed up the lower end of its guidance, raising it to $130 million from $125 million, with adjusted earnings remaining in the range of $0.25 to $0.35 per share. That analysts didn't believe the company last time out and still had a consensus view of $0.40 per share shouldn't be held against Majesco.

The CAPS community remains hopeful though with more than 90% of those rating it believing it will go on to outperform the broad indexes. Add Majesco to your watchlist then let us know in the comments box below or on the Majesco Entertainment CAPS page if you think it's still got game.

Trouble's brewing
Supply chain and on-demand business messaging services provider EasyLink Services was another company whose stock was done in by poorly received earnings news. Once again it failed to impress, though this time, instead of revenues doubling and profits more than tripling, sales declined year over year and adjusted profits rose a more modest 21%.

Guidance wasn't all that good either as it said it expected revenues to be $4 million below prior forecasts because it cut loose two customers it thought didn't provide good margins to the business. It still faces a patent infringement lawsuit from j2 Global  (NAS: JCOM) that's scheduled to begin next month. In January, the U.S. patent office gave EasyLink a boost by confirming the patentability of all of the claims in the patent in question. Previously, j2 had won a Markman order hearing, which is used to iron out interpretations of various patent claims before a trial begins.

The two have been battling for some time, but j2 also has patent infringement claims against Open Text (NAS: OTEX) subsidiary Captaris. It's a cutthroat business where the main rivals are also threatened by fax-to-email providers, broadcast fax companies, and traditional fax machine and multifunction printer companies.

Although only a half-dozen CAPS All-Stars have weighed in on EasyLink, they're unanimous in their belief it will beat the Street. Add the embattled messaging services provider to the Fool's free portfolio tracker to keep apprised of what message it's sending to the market next and tell us on the EasyLink Services CAPS page your opinion on how it addresses these credible threats.

Ready for a resurrection
Just because your stock has taken a beating, that doesn't mean it's going to roll over and die. Markets are known for overreacting. Balance out the extremes by finding companies that will help you build a solid retirement portfolio. You can find them in The Motley Fool's report "3 Stocks That Will Help You Retire Rich." This is a special free report that you can access right now simply by clicking here -- it's free.

At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft and Open Text. The Fool owns shares of and has written calls on Open Text. Motley Fool newsletter services have recommended buying shares of Microsoft and Open Text. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended writing puts on Open Text. 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 Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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