GROUNDING HITS INVESTORS : VALUJET'S STOCK VALUE PLUMMETS.

Byline: Farrell Kramer Associated Press 

The grounding of ValuJet Airlines has punctuated a rapid turn of events for investors in one of Wall Street's hottest stocks. About a third of the company's market value was lost on the news.

ValuJet Inc.'s suspension of operations under pressure from the Federal Aviation Administration knocked its shares Tuesday to levels not seen in about 1-1/2 years. ValuJet lost $3.50 to end a wild trading day at $6.50 a share on the Nasdaq Stock Market.

The airline company's stock-price erosion actually began late last year, but it has accelerated since the May 11 crash in the Florida Everglades that killed 110 people.

After going public in June 1994 to much acclaim - and rising from about $5 a share in January 1995 to almost $35 around Thanksgiving of that year - ValuJet's decline is nothing short of devastating.

It does highlight, however, the risks of putting money into Wall Street's sizzling issues, usually driven by a mix of speculation, a helpful market and a story that captures the imagination. Often young, such companies can have trouble recovering from adversity.

``You've got to be careful about these hot things, especially these newer issues, because they don't have the same space for foul-ups as a more established company,'' says Stan Weinstein, publisher of the Professional Tape Reader, a market newsletter.

It's unclear when ValuJet Airlines will start hauling passengers again. The discount airline's existence appears anything but assured.

The turn of events is particularly stunning since just a year ago the discount carrier was being touted as the airline of the future, reinventing commercial aviation in a more profitable mold.

ValuJet made its mark by buying older aircraft, having various tasks performed by outside contractors, and keeping operations simple and ticket prices cheap. Wall Street latched onto that story, as well as financial results that seemed to be going nowhere but up.

``Every time they announced more airplane additions, the stock ran up again,'' recalls John Pincavage, an airline industry analyst at the brokerage firm Dillon Read & Co.

But as often happens on Wall Street, as soon as the airline's performance began to lag exceedingly high expectations, its stock began to slip. The first news came in January, Pincavage says, when the company announced some disappointing operating results.

Later, word the airline was going to slow expansion took some more value out of ValuJet. The crash and then the grounding really took the starch out of ticker symbol VJET.

Of course, not all hot stocks with compelling stories end up as disappointments. Microsoft Corp. was once a red-hot young company. Nike Inc. was, too.

By the same token, though, investors don't have to look far for other story stocks that have run into difficulty. For example, Presstek Inc., a maker of advanced printing equipment, rose from about $50 a share in late 1995 to as high as $200 last month.

But word of overly optimistic outside financial projections as well as other events, including news of an investigation into possible manipulation of Presstek's stock, took the wind from its sails. The stock lost an additional $14 a share Tuesday in Nasdaq trading to close at $56.

Is there a lesson in all this?

``It's common sense,'' says Weinstein. ``The higher something is kited up, if something goes wrong with it, the farther it's going to fall.''

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Photo, Chart

Photo: (Color) Keith Rizzolo reacts Tuesday in Atlan ta as he finds out his ValuJet flight was canceled.

Associated Press

Chart: (Color) VALUJET GROUNDING