What happened
Shares of Zoom Video Communications (ZM 1.37%), Wix.com (WIX -0.51%), and Shopify (SHOP -5.62%) fell 10%, 8.7%, and 5.5%, respectively, on Thursday amid a broad-based decline in the financial markets.
So what
Zoom, Wix, and Shopify have seen their stock prices soar in 2020, as investors have sought out businesses that are holding up well during the coronavirus pandemic. While countless companies have struggled during the crisis, demand for Zoom's videoconferencing software and Shopify and Wix's e-commerce tools has boomed. Investors, in turn, have responded to their surging sales growth by bidding up their share prices.
After soaring in recent months, many growth stocks surrendered a sizable portion of their gains on Thursday. Image source: Getty Images.
But when the market turns, premium-priced growth stocks often sell off violently. Traders rush to lock in profits, and their large stock sales can cause prices to fall sharply.
Now what
Zoom, Wix, and Spotify could certainly see their stock prices decline further in the coming days and weeks, particularly if we enter a recession-driven bear market. Fears that declining unemployment benefits and rising business failures will drive the economy into a deep and prolonged downturn are intensifying. Moreover, after the market's steep rise since March, many growth stocks are now priced richly, and arguably no longer reflect the risk of a lengthy recession.
However, these three companies are all benefiting from powerful secular growth trends, such as remote work, entrepreneurship, and e-commerce. So the fundamental drivers of their businesses should stay strong even if the economy remains weak for some time. Thus, if their stock prices do retreat further, long-term investors may wish to use the decline as an opportunity to pick up shares of these high-growth companies at a discount.
