Wallflowers fade into the background. Image Credit: David Hawgood (CC by SA-2.0).
In the stock market, a wallflower is a stock in which the wider investment community has generally lost interest, leading to low trade volumes. Wallflowers may be in an unpopular industry sector, or in a sector that has had a recent economic bubble. For instance, dotcom stocks went from hot properties to wallflowers during the early 2000s, taking many years to fully recover. Like a timid person at a party, a wallflower stock goes unnoticed by investors while not doing much to stand out.
Wallflowers often trade at low price to earnings (P/E) or price to book (P/B) ratios. The lack of interest in a wallflower can have a cumulative affect: the more analysts ignore a stock, the lower its trading volume is likely to be, and the more it is ignored by retail investors. This can lead to uncertain pricing and low bid-ask spreads. However, wallflowers can be good value stocks if the investor believes that it is undervalued based on fundamentals.
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