Laggard

What is a Laggard?

A laggard is a security or stock that is underperforming in comparison to its peers or benchmark. A laggard has lower-than-average returns relative to the Market. Also, it is regarded as the opposite of a leader.

In most of the situations, a laggard is refers to a stock. This term, however, can also be used to describe an individual or a company that has been underperforming. Often, it is used to signify bad vs good, meaning the laggards vs leaders.

Explaining Laggards

Investors always wish to avoid laggards as they achieve less-than-desired return rates. In a broader term, laggard means progress resistance and a persistent pattern that falls behind. Let’s explain it with a laggard example.

Suppose there is a stock, named ABC, which is constantly posting annual returns of 2%, while other stocks in the same Industry are posting average returns of 5%. In this case, stock ABC will be regarded as a laggard.

If an investor has laggards in his Portfolio, he is more likely to sell these stocks first. Obviously, holding a stock that offers a 2% return in comparison to a stock that offers a 5% return will be costing you 3% every year.

Unless you have a significant reason to trust that a substance, irrespective of nature, may life stock’s shares that have been lagging historically, continuing to hold laggard will cost you more money.

The reason behind the subpar performance of a laggard is generally related to the company, such as losing a big contract, dealing with labour issues, experiencing management problems, eroded Earnings, unable to suffer in the competitive market, or no substantial way to counteract the competitive trend.

Should you Buy Laggard Stocks?

Most of the people still cannot figure out how a stock becomes a laggard. Perhaps, the reason could be the consistent missing earnings of the company or shaky sales estimates. Also, lower-priced stocks carry more risk as they generally featureless amount on the Basis of trading liquidity and showcase massive spreads between the ask and bid prices.

Of course, every individual takes pride in their bargaining trait. However, as far as Investing is concerned, laggard or cheap stocks might not be the appropriate deal for you. Although a stock share that is priced at Rs. 500, Rs. 800 or Rs. 1000 may seem to have a lot of upsides; however, you must not forget the reason behind a stock share coming as cheap as Rs. 1000.