What Is a Laggard?
A stock or asset that is performing worse than its peers or benchmark is called a behind. A laggard will yield results that are below average in the market. The antithesis of a leader is a laggard.
Recognizing Laggards
A stock is typically referred to as a laggard. However, the phrase can also characterize an underperforming business or person. It frequently characterizes good vs. evil, as in “leaders vs. laggards.” Due to their lower-than-expected rates of return, laggards are something that investors want to stay away from. Being a laggard is always lagging and resistant to change. Consider stock ABC, which routinely reports yearly returns of just 2%, while other stocks in the industry yield average returns of 5%, as an illustration of a laggard. It would be deemed that Stock ABC is a laggard.
The laggards in an investor’s portfolio will probably be sold off first. Keeping a stock that yields a 2 percent return rather than a 5 percent return costs you 3 percent annually. Maintaining laggard stock requires financial outlay unless there is a strong indication that a catalyst will increase shares of the company that has historically underperformed its competitors. Typically, specific organizational circumstances are what lead to a laggard’s poor performance. Perhaps a significant deal was lost. Perhaps they are presently handling labor or management concerns. Perhaps they are losing money in a market that is becoming increasingly competitive, and they cannot reverse the trend.
Purchase Risks of Laggard Stocks
How does a stock start to underperform? Maybe the company consistently underperforms in sales or earnings, or its fundamentals are questionable. Lower-priced equities are likewise associated with higher risk because they frequently have more considerable disparities between the ask and bid prices and less dollar-based trading liquidity.
Everyone enjoys a good deal. However, a cheap or lagging stock might not be the ideal option for investing. You may receive what you paid for. Most stocks selling for $10 or less are inexpensive for a reason, even though a share at $2, $5, or $10 may appear like it has a lot of upside. They currently have an issue, or they have had some shortcomings.
Purchasing fewer shares of a soundly rising institutional-quality stock can be better than purchasing thousands of shares of a cheap stock. Top mutual funds and other significant players prefer companies with strong sales and earnings histories and share values of at least $15 on the Nasdaq and $20 on the NYSE. Additionally, they desire volumes to be at least 400,000 shares daily, as this minimizes the influence of fund trades on the share price.
Conclusion
- Regarding returns, a laggard stock does worse than its standard.
- When a trader has laggards in their portfolio, these are usually the first things they want to sell.
- A loser may look like a good deal to investors but comes with too much danger.
