Underperform
Candlefocus EditorFundamental factors are the primary cause of an underperformance rating; however, there are many potential reasons why a stock might unfairly receive an underperform rating. For example, company profits may be slowing or a company may be experiencing a period of weak capital performance. Additionally, recent news events, such as a lawsuit or regulatory action, or a company changing its operations can also negatively impact a stock’s performance. Absent of any investment analysis, stock price is also influenced by sentiment and panics in the market. It is possible that although the stock may not be in poor shape, the negative sentiment from the market can pull down the stock's price.
When a stock is underperforming, it is important for investors to take time to understand the reasons for the underperformance and consider their options. In most cases, analysts hold this rating for a short term. As such, investors may wish to look for news and new developments that can have a positive effect on the stock’s performance. They may also want to consider holding onto the stock as it may eventually catch up to the broader market. Other investors may opt to sell the stock to minimize losses. Ultimately, it will depend on each individual investor and their risk assessment.
In conclusion, an underpeforming stock is one that is not meeting the market's expected performance. Although many stocks will pass through periods of underperfomance, the reasons for the underperformance should be carefully considered so investors can make the best decisions to maximize their investment.