After the 2008 financial crisis, the collapse of a company is something that seems less far-fetched than it used to. Still, finding a company that is on the verge of collapse is quite a difficult task. To help our readers pick out stocks that are displaying red flags, we used the example of BlockBuster (formerly under the ticker BB) and examine its stock’s collapse. The once dominant video rental service (and dividend-payer) saw technology dethrone its market share and send its stock into a tailspin.
Below, we present five charts that illustrate BlockBuster’s downfall.
A Stock with Downward Momentum
BlockBuster went public in late 1999, at the height of the internet bubble. It was able to navigate the bursting of the bubble: better than most, but it did not take long for the stock to start its fall from grace:
BB peaked at a price of $29.45 on 5/1/2002, a top that quickly made way for a swift drop less than a year later. Though it regained some lost ground in 2003, the following years would see nothing but losses for the stock.
Another way to look at BB’s collapse is to examine its daily movement in percentage terms. Though it may have hit its peak in 2002, the stock became extremely volatile from 2008 on, even seeing its price jump by more than 100% in a single trading session:
As its stock continued to lose ground, its movement on a day-to-day basis became very erratic and unpredictable, a sign of a stock that is faring quite poorly.
Spiking Volume for BB
As its price continued to decline and its volatility increased, BB saw its daily volumes swell as traders tried to step in to make a profit:
Take note of how daily volume spikes increase as BB moves downward. Its highest volume day came on 9/28/2011 when it traded 69,030,600 shares. That day saw the stock jump 75%, only to lose a respective 86% and 40% in its following two trading sessions.
BB vs. The Competition
One of the biggest competitors (and reasons why BlockBuster went bankrupt) is Netflix (NFLX), a stock that has continued to perform well in recent years. The chart below outlays the daily percent change in both BB and NFLX from the day the latter made its public debut (5/29/2002) until late 2009, once BB had already lost 99% of its value.
Had we continued this chart through today, NFLX would be up over 5500% while BB would look like nothing more than a flat line that gradually sinks to -100%.
BB in Search Volume
Here is a chart that may not immediately come to mind when evaluating a stock. This chart represents the number of Google searches for “BlockBuster” over the last 10 years. A clear trend emerges, as the searches continue to dwindle as the years go on, almost in tandem with BB’s price [see also A Stock Trend You Never Considered: Comparing Search Traffic and Stock Performance].
Bonus: A Trip Down Memory Lane
As an added bonus, the following image is a screen capture of BlockBuster’s website on 2/29/2000.
The Bottom Line
Finding a company on the verge of collapse is typically a culmination of a number of factors, including some that we did not mention above. Always be sure to keep an eye out for red flags to ensure that your holdings are stable and secure.
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