What is happening in GROWTH and TECH stocks

Nasdaq gained 9.6% in August and peaked at 12.000+ on the 2nd of Sept

It then quickly lost over 6% in 2 days

A short week-end thread

If you’ve been here for some time, you have already experienced drawdowns

Remember September 2018 when the $QQQ went from 185+ to 145 and would not break out until end of December

Remember September 2019 when high flying growth names lost 15 - 20% in 2 days for no reason

What happened lately?

Investors hate uncertainty above anything else and COVID halved the valuation of most (growth) stocks

Lockdowns were put in place and the economy shifted virtual

Once the uncertainty around COVID faded, tech stocks took a central stage as they provided the tools we needed for this virtual world

With 0% interest rates and the massive stimulus from most governments, some asset prices have to inflate eventually

With most parts of the economy still in lockdown, that dry powder went directly into growth stocks as two factors came into play

First, lots of these little known stocks came on the radar of Big Finance - a very interesting account to follow here is @HedgeMind

Second, these were the only stocks that were “investable” as demand for their product subsisted and even increased during lockdown

On valuations now

With small to negative income, what matters for growth stocks is the Price to Sales Ratio

A look at most tech stocks (large and small caps) reveals that their PS ratio has extended above it average bounds in the last months

Large caps

$AMZN PS of 5.2 versus Avg. around 2.5 over last 5 years

$AAPL PS of 2 versus Avg. around 1 over last 5 years

$MSFT PS of 11 versus Avg. around 5 over last 5 years

Small caps

$OKTA PS of 35 versus Avg. around 25 over last YEAR

$TEAM PS of 26 versus Avg. around 17 over last YEAR

$NOW PS of 23 versus Avg. around 15 over last YEAR

The bottom line

Whether you want it or not, large caps lead the indices and affect how smaller stocks trade

PS ratio are currently in the higher range and it might be harder to expand further unless any very positive news pops up

These stocks might thus need some more time and the pullback might last - which is rather a good news as it prevents any bubble from forming

Trying to time to market has proven to difficult for me, I just stay invested and hold to my winners - The price of admission!

Hope you liked this thread!

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Disclaimer - This is not investment advice in any form and investors are encouraged to conduct their own research before investing.

Sources

✑ https://www.macrotrends.net/ 

✑ https://www.equityzen.com