Table Of Content
Can a Stock Go to Zero And Lose All Its Value?
Yes, a stock can absolutely go to zero, meaning its share price becomes worthless. This usually happens when a company enters severe financial distress and cannot recover.
If it can’t meet its debt obligations, loses all revenue sources, or faces insurmountable legal trouble, the business may collapse entirely.
As a result, investor confidence vanishes, trading volume drops, and the stock spirals downward.
-
How Does It Work? Example
For example, if a company over-leverages itself and sales plummet, creditors may seize assets, leaving shareholders with nothing.
This process can unfold gradually or quickly depending on how sudden the financial deterioration is.
In many cases, the stock gets delisted from major exchanges and moves to over-the-counter markets before ultimately reaching zero.
This isn’t common for large, well-managed firms, but high-risk stocks—especially small caps or speculative companies—can be more vulnerable.
Recent Examples of Stocks That Went to (or Near) Zero
Several companies in recent years (2020–2025) experienced a total or near-total collapse in share price due to fraud, overleveraging, or failed business models.
Below are examples of high-profile stock crashes:
Company | Sector | Year | Reason for Collapse | Result |
|---|---|---|---|---|
Bed Bath & Beyond | Retail | 2023 | Debt, poor sales, failed turnaround | Filed for Chapter 11 |
SVB Financial (Silicon Valley Bank) | Banking | 2023 | Bank run after liquidity crisis | FDIC takeover |
FTX (via FTX Token – FTT) | Crypto/Exchange | 2022 | Fraud, mismanagement, no reserves | Token dropped to near-zero |
Yellow Corporation | Logistics | 2023 | Labor disputes, mounting losses | Ceased operations, bankrupt |
What Happens to Shareholders When a Company Declares Bankruptcy?
When a company goes bankrupt, shareholders are last in line to recover value—if anything remains at all.
Stock may be delisted: Public shares are typically removed from major exchanges and trade over-the-counter at pennies.
Equity is wiped out in liquidation: If the company enters Chapter 7 bankruptcy and liquidates, creditors and bondholders are paid first; shareholders rarely recover anything.
Shares may be canceled or replaced: In Chapter 11 restructuring, the company may cancel existing stock and issue new shares, diluting or eliminating prior ownership.
Investors lose voting rights and control: Bankruptcy proceedings shift control to courts and creditors, not shareholders.
For instance, when Bed Bath & Beyond filed for bankruptcy in 2023, its stock quickly became worthless and was delisted. Similarly, Yellow Corp's shares dropped over 90% after it ceased operations
Can a Stock Recover After Dropping to Near Zero?
Yes, a stock can recover after dropping to near zero—but it’s rare and usually requires a dramatic turnaround.
For a recovery, the underlying company must survive bankruptcy or restructure its operations, often with new leadership, financing, or a change in strategy.
For instance, AMC Entertainment and GameStop both saw their stock prices plummet in 2020 during the pandemic but bounced back temporarily due to retail investor momentum and debt restructuring.
However, these rebounds were more the exception than the rule.
In most cases, once a stock drops below $1, it risks delisting. While a reverse stock split or new investor capital may delay the fall, recovery is often short-lived unless the company addresses its core issues.
Identify Warning Signs That a Stock Might Go to Zero
Spotting early red flags can help investors avoid holding stocks that collapse completely. Below are common warning signs—often seen in historical stock failures:
Consistent losses and mounting debt: Companies like Lordstown Motors showed multiple quarters of losses while burning through cash, signaling potential insolvency.
Frequent management turnover: Leadership instability, like at FTX before its collapse, often indicates deeper issues in strategy or governance.
Auditor resignations or delayed filings: When financial statements are delayed or auditors walk away, as seen with Luckin Coffee in 2020, it often hints at fraud or accounting problems.
Regulatory probes or legal issues: Ongoing SEC investigations or lawsuits can tank confidence fast, especially if the company relies heavily on investor trust (e.g., Nikola in 2020).
Each of these signs erodes investor confidence and signals elevated risk. Once institutional investors start pulling out, retail investors often get left holding the bag.
How to Hedge Against a Stock Going to Zero
Protecting your portfolio from a stock collapse involves diversification and proactive risk management. Consider the strategies below:
Use stop-loss orders: Setting automated sell levels—say, 20% below your buy price—can prevent further downside if a stock begins freefalling.
Buy protective puts: Options let you profit or limit losses if the stock crashes. For example, a put option on SVB Financial before its collapse would've significantly reduced losses.
Diversify across sectors: Avoid concentration in one risky industry. A tech-heavy portfolio might suffer if regulatory or market shocks hit that sector.
Stick with strong fundamentals: Companies with solid earnings and low debt are less likely to go to zero, helping reduce long-term portfolio risk.
These techniques help cushion the blow when unexpected collapses—like with Bed Bath & Beyond or Yellow Corp—occur.
FAQ
Yes, mutual funds and ETFs can hold failing stocks, but diversified holdings reduce the impact of any single company going under.
If a company survives bankruptcy, it may issue new shares during restructuring. However, existing shareholders are often wiped out first.
It varies—some stocks collapse in days after bad news, while others decline gradually over months or even years as fundamentals deteriorate.
Dilution spreads ownership among more shares, reducing value per share. Going to zero means the stock has lost all market value.
Some traders speculate on a turnaround or short-term bounce, especially after bankruptcy filings, but this is extremely risky.
A short squeeze is unlikely if the company is genuinely failing. However, short-term rallies can still happen even in distressed stocks.
If it’s truly at zero, there’s no buyer to sell to. But if it’s trading at a fraction of a cent, you may be able to exit at a loss.
You’ll likely lose your investment, unless the company recovers or restructures favorably—which is rare in those situations.
