What happened
Livongo Health (LVGO), Sea Limited (SE -0.69%), and Fastly (FSLY -3.35%) were among the losers today, as their shares fell along with the broader market on fears of an expanding coronavirus outbreak around the world and in the U.S.
Reported cases in Florida hit an all-time high today with more than 5,500 new cases, and New York, New Jersey, and Connecticut implemented a mandatory two-week quarantine on visitors from states now experiencing severe outbreaks, including much of the South.
The news comes as the virus continues to spread rapidly in other parts of the world, including Latin America, South Asia, and the Middle East, undercutting the narrative that the global economy was recovering from the pandemic. The International Monetary Fund also slashed its GDP growth expectations for the year, forecasting a 4.9% decline, and said the economy would recover more slowly than expected.
The news drove risk-off behavior among investors as they abandoned both cyclically sensitive stocks and those that had racked up big gains this year because of their perceived resistance to the pandemic. That latter group includes Livongo, Sea Limited, and Fastly, which have all more than doubled this year, as the chart below shows.
As of 12:56 p.m EDT on Wednesday, Livongo was down 4.4%, Sea had fallen 5.4%, and Fastly had given up 3%. At the same time, the S&P 500 was down 2.2%.
Image source: Getty Images.
So what
There was no specific news on these stocks today. Rather, reports seemed to remind investors that the global economy is still on shaky ground and that the coronavirus crisis may be getting worse, not better, as the strong recovery from the March bottom once seemed to indicate.
All three of these stocks have performed so well because they're seen in some ways as benefiting from the pandemic, or they are high-growth stocks unaffected by the coronavirus.
Fastly, for example, has more than tripled as its first-quarter earnings report triggered a blockbuster rally. The content delivery network, which accelerates access to web pages, saw traffic jump on its platform as shutdown orders took effect. That helped the company beat analyst estimates in the first quarter and lift its guidance for the year. It now expects revenue of $280 million to $290 million, up from a previous range of $255 million to $265 million, which represents 42% growth at the midpoint. While that upgraded forecast is encouraging, Fastly's improving prospects seem to be more than priced into the stock at this point.
Similarly, Sea Limited is in a position to take advantage of the pandemic as a provider of e-commerce and digital gaming services in Southeast Asia. But after the stock nearly tripled this year, it seems that the expected growth is already priced in.
Finally, Livongo is a cloud-based provider of health-monitoring services, and seems only marginally affected by the pandemic since its business looks to be resilient to both COVID-19 and a global recession. The company is growing revenue by triple digits and also raised its guidance in its first-quarter report, but valuation concerns may be putting a ceiling on the stock for now.
Now what
With today's pullback, which appears to be the first in several weeks for all three of these stocks, investors may be saying that high-growth stocks have reached a secular limit, especially for those that have already racked up gains around 200% in just a few months. Though Livongo, Sea Limited, and Fastly could certainly move higher from here, at this point they will probably need to do the heavy lifting themselves, rather than just riding investor sentiment. The market momentum that carried them to monster gains this year seems to be fading.
