Falling share prices - an opportunity for investors?

When stock markets fall, many investors are likely to consider investing in equities. The hope: a quick recovery and an attractive return. But there is also a risk of getting caught, especially as stocks can fall further. So how do you distinguish between candidates with turnaround potential and those that will not recover in the foreseeable future? This is where turnaround strategies come in: They focus on companies that have suffered temporary setbacks but can achieve a sustainable turnaround through targeted measures and strategic adjustments. But what are the criteria for a successful turnaround?

How do you recognize turnaround candidates?

It is often assumed that stocks that have fallen in price are likely to represent an attractive investment opportunity. However, this view can be misleading, as not every company whose share price has fallen manages to turn around and promise future profits. This is where the so-called turnaround criteria come into play. They can serve as a tool to distinguish promising stocks from those that face long-term challenges:

• Structural change: Companies that have a clear potential to improve efficiency and pursue a clear strategic realignment.
• Management change: This can bring about far-reaching strategic changes and steer the company in a new, positive direction.
• Adaptability: In an ever-changing macroeconomic environment, flexibility can be a critical factor. Companies that can adapt quickly to new conditions tend to be better positioned for long-term success.

The Great Netflix Correction: A turnaround example

After a long period of steady growth, Netflix came under pressure. Increasing market saturation, growing competition, and changing user behavior led to a declining share price in 2022. To adapt to changing market conditions, the company implemented targeted strategic actions that enabled it to stabilize and return to growth.

An important step was the management change in 2023, with a new strategy focused on new revenue streams, customer retention, and content strategy. At the same time, Netflix invested in technological developments such as personalization of the offering and artificial intelligence to further improve the user experience.

International expansion also played a key role. Regional content and flexible pricing strategies opened new markets and increased subscribers. Investments in original productions further strengthened Netflix's market position. In addition, the company introduced ad-supported subscriptions in 2022 to generate new revenue streams.

Our experts' analysis of Netflix shows how targeted strategic adjustments and innovation can enable a turnaround.

Turnaround strategies: Weighing the risks

Recovery strategies focus on companies that are taking strategic action to restore their competitiveness and thus offer investment potential. When selecting recovery strategies, companies with structural problems are consistently excluded. But even then, a turnaround is not always guaranteed: While some candidates fail to turn around at all, other companies may initially continue to lose value before turning around. The investment horizon of such strategies is therefore crucial and is usually medium-term.

In order to minimize investment risk and avoid bad investments, careful and well-founded analysis is essential. Care should be taken to ensure that companies are pursuing a sustainable strategy that has the potential to restore growth in the long term.

The bottom line

For medium-term investors, strategies that focus on depressed stocks with turnaround potential can be an attractive investment opportunity. Careful stock selection based on sound expert analysis and careful consideration of opportunities and risks is crucial.

If you would like to learn more about possible investment strategies in the recovery context, please contact our experts for a no-obligation consultation.