Wallflower

By
rjonesx
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What is ‘Wallflower’

A stock that has fallen out of favor and does not get much attention from the investment community. A wallflower will typically have very low trading volumes and may also trade at low multiples of price to earnings or price to book. A wallflower stock is usually found in an unpopular sector, and seldom in a “hot” sector.

Also known as orphan stock.

Explaining ‘Wallflower’

In the social context, a wallflower is somebody who remains on the sidelines of a party for any number of reasons, including reticence, unpopularity or lack of interest from others. Similarly, in the financial context, the term “wallflower” may have its origins in the fact that such a stock is languishing on the fringes of the stock market.

Wallflowers often do not attract much coverage from research analysts, and this lack of institutional interest translates into below-average volumes and wide bid-ask spreads, which in turn can be a deterrent to retail investors.

A savage bear market can turn even best-performing stocks into wallflowers eventually, especially in cases where sector valuations have scaled absurd valuations in the preceding bull market. Examples of this phenomenon would be technology stocks after the dot-com implosion of the year 2000, and alternative energy stocks in the aftermath of the 2008-09 bear market.

Further Reading

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