What happened

Shares of New Relic (NYSE:NEWR), a software-as-a-service company that specializes in application performance management, jumped 13.9% on Friday. It was a quiet day on the news front for the business, so the jump is likely linked to the huge stock market rally. 

So what

The major U.S. stock market indices have been in free-fall over the last few weeks as the health and economic fallout of the COVID-19 pandemic continues to grow. Few stocks have been able to sidestep the carnage, and highly valued growth stocks such as New Relic have been hit particularly hard. 

Someone pressing a "buy" button on a keyboard

Image source: Getty Images.

As of Thursday, March 12, New Relic had fallen more than 30% from its recent high. If you widen the lens a bit further, New Relic is now down more than 60% from its all-time high that was reached in mid-2018.

The Dow Jones Industrial Average, S&P 500, and Nasdaq all rebounded on Friday, adding more than 9% in a single trading session. New Relic's stock benefited from that broad-based strength.

Now what

New Relic's stock has been under pressure for almost two years because management is choosing to invest aggressively in itself now in an effort to distance itself from the growing competition. That effort is leading to strong revenue growth, but adjusted earnings are taking a step backward. Traders haven't been convinced that this strategy will pay off in the long run. The coronavirus-induced bear market has only exasperated those concerns.  

On its last earnings call with investors, management boosted the company's fiscal year 2020 revenue guidance to a new range of between $594 million and $596 million, which represents top-line growth of 24% at the midpoint. It's anyone's guess whether or not the recent downturn will affect the company's ability to deliver on that target.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.