Tesla Motors (TSLA), Fitbit (FIT) and Keurig Green Mountain (GMCR) were slaughtered Thursday following disappointing earnings. Each stock was battered to a degree that makes you have to wonder if the market is calling open season on some of the better-known momentum stocks.
Technically, GMCR isn’t a momentum stock these days, unless you’re talking about momentum to the downside. Not too long ago, however, GMCR was one of the hottest stocks going — more than tripling over two years.
Now, after a 30% bloodletting post-earnings, GMCR is off 60% for the year-to-date.
As for TSLA stock, shares were up more than 25% for the year-to-date less than a month ago. And now a double-digit percent plunge is threatening to wipe out everything TSLA stock gained this year.
Then there’s Fitbit. Anytime a stock rises 140% in two months following an initial public offering, you have to wonder if this kind of steep selloff on earnings could be the start of something ugly.
In every one of these cases, the selloff was initiated by some kind of guidance scare. Whether it was estimated deliveries from TSLA, profit and sales targets from GMCR or margin forecasts at FIT, the market punished these names relentlessly.
True, the market usually overreacts in the short-term, but this kind of action still raises questions about the market’s appetite for risk. After all, it’s not like investors are in love with equities this year as it is.
Momentum Stocks: A Canary in the Coal Mine?
Stocks in general are stuck heading into the Federal Reserve’s first rate hike in almost a decade. The S&P 500 has hardly budged this year, and the Dow Jones Industrial Average is down more than 2%.
Higher-risk, higher-reward stocks are even less fashionable. Small-cap stocks are underperforming large-cap stock. When names like FIT and TSLA start to crack — as GMCR did earlier — it’s only natural to wonder if this year’s static stock market is set to turn south.
If there’s good news for momentum stocks, these three names make for a very small sample size. Besides, Netflix (NFLX) — the biggest momentum stock of all — remains as hot as ever. It’s up 150% so far this year.
And it’s not like Thursday’s action was a huge reversal for shareholders in any of these stocks. GMCR has been suffering from slowing sales for a long time now, and it’s attempt to find success with a cold-beverage system has always sounded like a bit of a stretch.
FIT, meanwhile, retained most of its post-IPO gains, and sold off as much on accounting confusion as it did tightening margins and some decelerating in the growth rate.
TSLA is just being TSLA.
That said, this market has less even patience than usual for imperfection on the part of hot stocks. Anyone betting on momentum stocks in an otherwise boring year for equities would so well to reassess those holdings.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
