Internet companies, food delivery companies and online retailers are paying a heavy price for disappointing results.
Share prices of European companies from Asos Plc and Zalando SE to Logitech have tumbled after reporting results over the past month. This fact makes companies with extremely high valuations look even more precarious, suggesting that investors are no longer willing to buy growth stocks at all costs.
"We are past the stage where investors invest in anything," Janet Mui, Brewin Dolphin's investment director, said by telephone. "investors are beginning to have screening. Investors are looking for quality and predictability. "
Of course, this trend is not uniform. Many stocks rebounded after weak performance and are still near all-time highs. Shares in HelloFresh SE, a delivery company, fell 8.7 per cent in intraday trading on Friday after its earnings forecast fell short of market expectations, but closed down just 2.5 per cent on the day and is still up more than 20 per cent this year.
But investors are not so tolerant of all companies. Shares in online retailer Asos fell 18% after it expected sales growth to slow. Shares in remote software maker TeamViewer AG fell 14 per cent after reporting weaker-than-expected results.
"some of them are ahead of time," said Freddie Lait, chief investment officer of Latitude Investment Management. "it will be more difficult next year."
Part of the reason investors are less tolerant is that they have more choices. There are many stocks with low valuations and strong sales growth, and money is flowing into weekly stocks. Lait said he thought there was an opportunity to buy stocks that underperformed during the pandemic, such as Diageo, the beverage maker.And Heineken, they have the ability to raise the price of their products.
It's a trend all year round. Just Eat Takeaway.com, Ubisoft Entertainment and Ocado Group Plc were among the top decliners in the Stoxx Europe 600 index in 2021, all down more than 16%.
High-valued stocks fell first in February as inflation rose and bond yields rose. With the Fed likely to set a downsizing schedule this autumn, bond yields are likely to return to an upward trajectory, putting new pressure on highly valued stocks.
"the market is trying to assess long-term sustainable growth in the future," said John Flynn, a portfolio manager at State Street Global Advisors. "some unsustainable levels of growth in the first four quarters have made this task difficult."
