Browse the clearance section at your local grocery store, and you’ll likely find a mixed bag of goods. Baked goods whose “sell by” date is today--or maybe even yesterday. One or two stray cans of products the store no longer sells. (Canned potato salad, anyone?) And limited-edition releases from big brands, like Salted Caramel Pepsi, Mickey Mouse Oreos, and the always-fun yet sometimes startling new flavors from Lay’s. Grocers will cut the prices on merchandise that’s been discontinued, that isn’t selling, or that is off-trend.
Similarly, there are plenty of reasons why our analysts may cut a stock’s fair value estimate. Sometimes, they'll reduce a stock’s fair value estimate because our long-term outlook for the company has dimmed. Other times, though, we still like the company, but maybe short-term headwinds are blowing a little stronger. Or a company is opening a new, more promising chapter that may take time to play out. As a result, a fair-value snip isn’t always a sign that a company is losing its mojo--nor is it a sell signal.
Susan Dziubinski does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.