The stock market has been a volatile place to be over the past few years. We have seen multiple companies go bankrupt or insolvent in a matter of weeks or even days. Sometimes, investors do not correlate a bankrupt company with its stock price. You should know that if a company’s stock price goes to zero, the business is likely over. So that does bring up an interesting question: can a stock come back from zero? I put in some research and here is what I found.
Unfortunately, if a stock’s price falls to zero, there is no coming back from it. There were likely many warning signs leading up to a stock’s price hitting zero. Whether it was in your control or not if a stock you hold falls to zero then there is no way to save the money that you invested. It is one of the hard lessons of investing in the stock market.
When a company’s shares fall to zero, it means that the company itself has little to no value. In fact, by the time the stock price hits zero, the company might already be out of business. If a stock you own has fallen dramatically in a short amount of time, it might be time to look into the company to see what is going on. A stock’s price typically does not fall that low unless there is something fundamentally wrong with the underlying business.
Can a Stock Come Back from Zero?
For publicly traded companies, the stock price is an indication of its current market value. An example of this is calculating market capitalization. This is often seen as the true value of the company. The market cap is calculated by multiplying the total number of outstanding shares by the stock’s price.
Using this simple formula, if the stock’s price is zero, then the value of the company will be too. This is the most straightforward way of using the stock price to determine the relative health of the company. If the market capitalization is steadily declining, then we can assume that the overall worth of the company is too.
Once that stock price hits zero, there is absolutely no way to come back from it. Whether it is a blue-chip stock or a penny stock, the same rules apply to any publicly traded company.
How Common is it for a Stock to go to Zero?
Stocks rarely go to zero because the major exchanges will likely halt trading on it before it ever gets to that point. There have been many publicly traded companies that have gone bankrupt, but rarely have their stock prices ever reached zero before they were de-listed. Usually, an exchange like the NASDAQ or the NYSE will step in before investors are completely wiped out.
This might leave you with a small window to sell your shares. If the stock’s price has fallen this much in a short amount of time, it is usually best to cut your losses. Selling at a loss is better than holding until the stock is de-listed. At this point, there is a chance you might not be able to recover any of your investment.
So how common is it for a stock to actually hit zero? Not very common. Even if a penny stock is trading for less than one cent, it is still much different from saying the stock is going to zero.
What are the Biggest Stocks That Went to Zero?
As I mentioned, there have been many companies that go bankrupt on the stock market. But even with these companies, the stock price rarely goes to literal zero. Two major American companies that come to mind are Enron and Worldcom. These are two of the most famous bankruptcies in recent memory.
Enron was a massive energy company in the 90s that is well-known to most investors. This company decided to use accounting to cover up massive losses and fake assets with no real value. Well, eventually it all caught up to the company and Enron filed for bankruptcy in 2001. Even with the company being worth next to nothing, the stock was trading at about $0.26 per share when it went bankrupt.
Worldcom was a telecommunications giant that also used questionable accounting practices. The company reported net income and claimed all of its expenses as investments. It even reported a profit of over $1 billion when it was making no money at all. In fact, Worldcom was losing money at the time. This all culminated in bankruptcy in 2002, but the stock was still trading for just below $1.00 at the time.
Curious About Shorting Stocks? Read this: How do Short Sellers Drive The Price Down?
Do I Lose My Money if a Stock Gets Delisted?
There is a good chance of it. Now, there are many reasons a company will get delisted from an exchange. For this article, I will be focusing on reasons that would cause the stock’s price to fall to a level that would force an exchange to delist the stock. Usually, the major exchanges require a stock to trade above a certain level for a certain period of time.
If a stock you own gets delisted, you will usually receive some warning ahead of time. This is to allow shareholders to sell their shares back to the company. Make sure to pay attention to this as the stock’s price will likely fall even more at this point. If you miss that period altogether, you could end up with a big loss in your investment account.
The Bottom Line: Can a Stock Come Back from Zero?
For stocks that trade publicly, there is no way for it to come back once it hits zero. The good news for investors is that stocks will rarely actually trade this low. By the time the stock has fallen this much, they will either get delisted or the company will be bankrupt. But in the rare case that a stock falls to zero or close to it, there is no way for it to come back because, at this point, the company would be worthless.
Thanks for reading! I hope you learned a thing or two!