NEW YORK ( TheStreet) -- After Znyga (ZNGA - Get Report) announced cost reductions resulting from laying off over 500 employees (18% of the workforce) is it time to buy the stock? The short answer is no, the shares aren't cheap enough to justify the risk.The first thing to keep in mind is that any stock trading under $5 should first be treated as a bankruptcy candidate. Usually there's a compelling reason why stocks fall under $5 a share, and all sorts of negatives are triggered. Many brokers do not allow low-priced stocks to be sold on margin. In turn, some investors will need to liquidate shares, add more money or a combination of both.
What that means is doubling up to reduce your average cost and/or "hoping" for a quick comeback usually results in even greater losses. When the market is telling you that you're wrong, it's generally appropriate to listen. The key is to evaluate what the market is saying with what the financial reports are saying. Take Apple (AAPL), for example. Apple is down significantly from a high of over $700 per share, but appreciated each of the last four years. With half a year to go, Apple can still end higher for 2013.