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You'd think that if a company is having layoffs, is not profitable, and is getting sued by competitors means that its stock will have to go down. So how can it be true that you can't predict it's future price, and how can it be true that it's as good an investment as a company doing well?

If a company starts to really suck, then it's stock price will fall. Investors will have adjusted its price to take into account its poor state. Sometimes companies turn around and start doing really well. A lot of the time they go under. There are lots of analysts on Wall Street that try to figure out the likelihood that a company will grow and shrink, what's its future earning potential, what's the competition like, and a host of other things. They're trying to determine what they think the stock is worth.

Say we were in 1990, and that there's a small solar energy company that's struggling because oil is cheap, so things can look pretty bleak for it. But analysts will try to assess how it will do in the future given different scenarios. If oil stays cheap they reckon the company will go out of business, but there's a 40% chance that by 2008, the price of oil will have skyrocketed to more than $100 a barrel in which case it'll become quite competitive. So in 1990 they might've concluded that there was some chance the company would become a huge success, and some chance it will have failed. They try to quantitatively determine exactly what the current stock price should be. Of course everyone has imperfect information, but analysts will try to use all the available information to make the best decision possible.

So if a company is not hot, it's price will be discounted accordingly and the future price might go up or might go down, and there's no way of determining the direction.

Now such companies have large volatilities because they are risky investments. But a successful strategy is to invest in a lot of very different companies, thereby cutting down their overall risk. So, it doesn't matter if the company is hot or not? Not really. Just spread your risk around to improve your odds at not sinking with the losers.