Wall Street’s pandemic darlings saga ends in tears

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An Amazon delivery person pulls a delivery cart full of packages during its annual Prime Day promotion in New York, U.S., June 21, 2021. REUTERS/Brendan McDermid/File hpoto

Think of something new you started doing two and a half years ago to make your life easier during the COVID lockdown and chances are today there is a related story about a stock market victim .

Add to that investor concerns about soaring inflation and an economic slowdown that has tipped Wall Street in a bear market this year, and you’ll find a bleak picture for companies that have become extremely popular over the pandemic.

Connected stationary bike maker Peloton Interactive told employees last week that its fourth round of job cuts this year was an attempt to save the company. His problems shine a light on others pandemic hot-shots like Zoom Video Communications, Nautilus Inc, DocuSign Inc and DoorDash Inc.

Growing investors pushed Peloton stock to a record high of $171.09 in early 2021. Demand was so strong for its bikes that restless consumers had to wait for long delivery delays. But shares of Peloton are now down 95% from their peak, closing at $8.53 on Wednesday. The S&P 500, by comparison, is down about 25% from its record high in January this year.

Others purchased exercise equipment from Nautilus during the pandemicsending its stock as high as $31.30 in early 2021. It last traded at $1.65.

Zoom became synonymous with online meetings as many people worked remotely and even turned to video conferencing for social gatherings. But Zoom shares were last at $75.22 from its high of $588.84, hit in October 2020.

Other stay-at-home favorites were online retailer Amazon.com and food delivery service DoorDash. People also flocked to user-friendly brokers like Robinhood Markets while stuck at home with no sports to bet on. But after rising $85 in August 2021, Robinhood last traded at $10.66.

“These are companies that have ideas that are good enough to get enough funding. They catch a wave like COVID, their usage explodes,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh. But once that growth slows, investors lose interest.

“They’ve kind of used up all the air in their universe and they have nowhere to grow. So even though people are still using Peloton, not enough people are buying Peloton,” Forrest said.

Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, Georgia, says Peloton may seem cheap, but he’s wary because it’s not profitable. Its price-to-sales multiple fell to 0.8, on a 4-quarter basis, from an average multiple of 6.6 since its IPO in September 2019, Morgan said.

Wall Street expects Peloton to post an adjusted loss per share of $2.07 for its fiscal year ending in June, compared with a loss of $7.69 for its fiscal year 2022, according to Refinitiv.

Zoom has made money and its valuation also looks cheap at 35 times earnings per share versus an average multiple of 135 since its debut in April 2019, Morgan said.

Yet he worries about declining profits. Zoom’s adjusted earnings per share are expected to fall 27% for its fiscal year ending in January from 55.5% growth in 2022, according to Refinitiv.

Morgan also pointed to slower growth for DoorDash and retail giant Amazon.com as they too are hit by soaring inflation and economic uncertainty.

“Each company will need to see how their particular business model can perform in a standardized environment,” he said.

Carol Schleif, assistant director of investments at BMO’s Family Office in Minneapolis, cautioned against investing in companies that look cheap and have loyal customers. It’s all about management, balance sheets and projected revenues, she said.

Although a possible outcome for pandemic favorites with slow growth could be taken over by a bigger company, Schleif is wary of making that bet.

“Buying a stock because you think it’s going to be taken out is a risk. I wouldn’t be willing to do it with money I didn’t want to lose,” she said. “It’s not really about investing. It’s more opportunistic.

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