What happened
Many stocks crashed hard on Monday as investors reacted to the continued spread of the novel coronavirus and plunging oil prices. For example, data analytics expert Alteryx (AYX) fell as much as 16% and non-SQL database specialist MongoDB (MDB -0.86%) bottomed out at a 16.7% drop. Israel-based data security company NICE (NICE -1.61%) took a 13.4% haircut and ad-buying platform operator The Trade Desk (TTD -0.54%) was trading 12.3% lower at 1:35 p.m., EDT.
All four of these big drops are good examples of how nervous investors can open up some tempting buy-in opportunities for high-quality growth stocks when the going gets rough.
So what
It's true that the virus is spreading all around the world at a dreadful pace. More than 110,000 people have contracted the novel coronavirus so far and more than 3,800 of them have died, according to a Reuters survey of government announcements. The rate of new cases is slowing down in China but surging in new hot spots such as Italy, Germany, and Oregon.
Investors aren't exactly running away from the four companies mentioned above because of some unique exposure to the virus. They simply entered this crisis with lofty stock valuations, setting them up for sharp corrections as investors minimize their stock market risk in favor of safer assets like gold and bonds.
Image source: Getty Images.
Now what
All four of the stocks mentioned above have now fallen more than 23% since the coronavirus outbreak hit the global news wires on Feb. 19. NICE traded at 63 times adjusted earnings on Feb. 19 while The Trade Desk's shares fetched a P/E ratio of 139 times earnings and Alteryx left them all behind at 250 times earnings. MongoDB can't be measured this way because it has negative earnings, but it sported the loftiest price-to-sales ratio in this group at 26 times trailing revenue.
These stocks aren't cheap by any means, even after those drastic coronavirus drops, but their valuations did cool down considerably. Now you can pick up NICE shares for 48 times trailing earnings, Trade Desk stock at a P/E ratio of 98, and Alteryx stock for 184 times earnings. MongoDB is now trading at 5.7 times trailing sales.
Again, all of these companies are monitoring COVID-19, but they don't expect the disease to slow down their actual business results all that much. For example, here's what The Trade Desk's CEO, Jeff Green, said on this topic in last week's fourth-quarter earnings call: "While we don't think it will have a significant impact, in the current environment, it's prudent to be measured."
The company absolutely smashed Wall Street's estimates in that fourth-quarter report and expects the fantastic growth to continue in fiscal year 2020. Alteryx did the same thing in mid-February, followed by a similar beat-and-raise report from NICE. MongoDB comes next, reporting fourth-quarter results on March 17. This company isn't profitable yet but its losses tend to be smaller than expected and its top-line has been universally impressive so far.
Growth stocks like these often trade at nosebleed-inducing valuations and their investors have to be prepared for some volatility. Right now, you're watching one of those "buy on the dip" opportunities unfold thanks to the coronavirus.
