What happened

In the fastest 10% drop in history, major indices including the S&P 500 sold off during the last week of February as fears of a global economic downturn mount. When the dust had settled, shares of subscription-service enabler Zuora (ZUO -0.22%) were down 10.2%, according to data provided by S&P Global Market Intelligence.

Zuora didn't report earnings in February, nor was it blasted by some famous short-seller. The only newsworthy event for the company in February came when CEO Tien Tzuo presented at the JMP Securities Technology Conference. But what he said there hardly justifies the stock's sharp decline.

A young woman makes a face communicating surprise.

Image source: Getty Images.

So what

On Feb. 25, Tzuo gave a fireside chat at the conference in San Francisco. He discussed real-life examples of how traditional product companies can benefit from adopting a subscription-service mentality. Recent corporate structure changes were also explored. But the conversation inevitably turned to COVID-19.

Tzuo shared that Zuora has about 100 employees based in China. They are currently working from home to help prevent the spread of the coronavirus. Tzuo pointed out that, as software engineers, working remotely isn't an unreasonable task. And he added that the company hasn't seen a meaningful drop in productivity in China during this time.

But investors may have simply focused on the fact that Zuora is technically being impacted by the coronavirus, as 100 workers are now working from home.

Now what

The real reason Zuora sold off 10% is fear. Fear can give investors a short-term panic mentality, resulting in irrationality. Remember that the company sells software as a service. And as Tzuo pointed out in his chat, it has hardly any cross-border activity; most of the company's customers are served by local teams. If ever there were a company unaffected by the coronavirus, it's Zuora. 

I'm not saying it is necessarily a top small-cap stock worth buying right now. But for those already looking to buy Zuora, a fear-based pullback is the good kind of pullback to buy into.