In general, it is the sale of goods or assets at tremendously lower or reduced prices to ensure a quick sale, especially when the seller is facing bankruptcy or trying to avoid financial distress. Originally, the term was used to describe a sale of merchandise damaged by fire at a heavy discount. For commercial companies, a fire sale may or may not coincide with a closeout, i.e., the complete liquidation of inventory.
In its narrower meaning, fire sale refers to the liquidation of a company’s assets at prices extremely below-market prices or fair market values to guarantee a quick sale. This is usually done either to avoid financial troubles or to pay off the obligations of an insolvent or bankrupt company.
In financial markets, fire sale indicates a situation in which the stocks are thought to be extremely underpriced or at an all-time low price level. Underpriced securities may offer a good opportunity to invest and create value; hence the term “value investing”.
