What's going on?

The controversial pharmaceuticals company, Valeant, saw its stock get pummelled yet again on Tuesday after it released its delayed first quarter results. The stock is now down more than 90% from its peak less than a year ago.

What does this mean?

A major tenet of Valeant�s strategy used to be buying small companies that made drugs for rare diseases and then increasing the price of those drugs once Valeant took control. But that caused a lot of criticism and, ultimately, Valeant shifted away from it as�the legal risks increased substantially. The remaining business lines are struggling to meet sales expectations and the company downgraded its projections for profit this year. There have been other problems, including legal probes into the company�s practices and the replacement of its CEO. So yeah, quite a lot going on…

Why should I care?

The bigger picture: High debt can be a big problem for shareholders. When companies take on debt, they often subscribe to a bunch terms (called covenants) that spell out certain financial limitations. For example, in Valeant�s case, it has to make a certain amount of profit (technically EBITDA), otherwise its lenders could take control of the company. Based on its own current projections for profit this year, Valeant will be very close to that minimum limit. It�s a good example of why stock investors should note how much debt a company has before investing.

For you personally: Let this be a lesson� Valeant was a hot stock until August of 2015.�TV pundits like Jim Cramer (and many others) were extolling the virtues of a stock that had already climbed a huge amount. One of the world�s most well-known hedge fund managers, Bill Ackman, bet Warren Buffett that it was a better investment than steady, eddy Coca-Cola. It turns out that Buffett was right � and the rest of us should take it as a reminder that what�s hot, is often not.