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Why Remote Work Stocks Fell Today

By Evan Niu, CFA - Jul 24, 2020 at 1:44PM

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Investors are taking profits off the table for momentum stocks that have rallied during the ongoing COVID-19 pandemic.

What happened

Shares of many remote work companies, many of which have soared so far this year due to the COVID-19 pandemic, have fallen today. While coronavirus cases continue to rise in the U.S., which will likely perpetuate work-from-home policies at many companies, investors may be questioning some of the lofty valuations following substantial gains over the past several months. As of 1:30 p.m. EDT, here's how these prominent remote work stocks were trading:

  • Slack (WORK): Down 4%.
  • Zoom Video Communications (ZM 6.38%): Down 3%.
  • Fastly (FSLY 4.13%): Down 2%.
  • DocuSign (DOCU 7.71%): Down 4%.

There isn't much company-specific news, but many momentum stocks that have soared recently are experiencing selling pressure. It's quite possible that investors are taking profits off the table amid market volatility.

WORK Chart

WORK data by YCharts.

So what

There's no doubt that the coronavirus crisis has benefited these tech companies by accelerating the shift to remote work.

Slack has seen a surge of engagement in its enterprise messaging and collaboration platform. Zoom has become a household name within a matter of months as people try to stay connected while adhering to social-distancing guidelines. Fastly's content delivery network (CDN) services are in high demand, facilitating things like video-streaming services and virtual live events. Companies still need to get paperwork done digitally, which is where DocuSign comes in.

Person working remotely on a laptop and holding a smartphone

Image source: Getty Images.

However, valuations have become stretched and fundamentals may not have caught up yet. For example, Zoom shares now trade at nearly 90 times sales, and the company may not be able to monetize some of its booming usage. The videoconferencing specialist recently said it had hit a peak of 300 million daily meeting participants, but that includes both free and paid users.

WORK PS Ratio Chart

WORK PS Ratio data by YCharts

Wolfe Research initiated coverage of Slack this morning with a peer perform (equivalent to neutral) rating and assigned a $32 price target. The same firm kicked off coverage of Zoom with a peer perform rating alongside a price target of $255.

Now what

COVID-19 has upended many aspects of the world, including how and where people work. Many experts believe remote work models are here to stay, particularly as an increasing number of companies start to appreciate some of the benefits that the flexibility offers.

At the same time, there has been a notable disconnect between the stock market and underlying economic conditions in recent months. The U.S. economy formally entered a recession in February, and unemployment is skyrocketing due to the crisis. While the unemployment rate is generally considered a lagging indicator for the economy, the unprecedented scale of recent job losses could still create aftershocks.

Considering the macroeconomic uncertainties, it's not a bad idea to start hoarding cash.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends DocuSign, Fastly, Slack Technologies, and Zoom Video Communications and recommends the following options: short August 2020 $130 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

DocuSign Stock Quote
$75.39 (7.71%) $5.40
Zoom Video Communications Stock Quote
Zoom Video Communications
$112.01 (6.38%) $6.72
Fastly, Inc. Stock Quote
Fastly, Inc.
$11.84 (4.13%) $0.47
Slack Technologies, Inc. Stock Quote
Slack Technologies, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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