But if such low, low prices make you think a battered Internet stock is a bargain, better think again. Plus, a new set of dynamics affect stocks this cheap that can make it even harder for a struggling dot-com to dig out of a hole. Managers of mutual funds, pensions, and other large institutional accounts generally won't touch them. A big part of the problem is liquidity. It just becomes too difficult for big buyers and sellers to trade the amount of stock they need without driving the share price up when they get in or driving it down when they try to get out.
Perception is also part of the problem.
Basically, a very low share price makes it all too apparent to big-time investors that the company is damaged goods. It looks like you're holding a stock that is a potential bankruptcy case, Hill says. That may not be the case, but perception-wise, there is that burden. The problems tend to spiral from there. Because institutions aren't interested, research analysts typically soon drop coverage of these low-priced stocks.