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Why Sea Limited, Etsy, and Stamps.com Stocks Sank Today

By Rich Smith - Updated Sep 4, 2020 at 4:04PM

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Three high-growth tech stocks just got caught up in a sell-off.

What happened

For two days running, the Nasdaq has been running scared -- and shareholders of e-commerce stocks Sea Limited (SE -4.13%), Etsy (ETSY -6.52%), and Stamps.com (STMP) seem no less frightened than others. All three stocks fell sharply in early trading this morning and, while they've pared their losses somewhat, in the final half hour of trading it's looking like they'll all still end the day in the red.

As of 3:35 p.m. EDT, Sea Limited shares remain down 2.1%, Etsy is down 3.8%, and Stamps.com is down 4.8%.

3 arrows trending down over a background of a map and dollar signs

Image source: Getty Images.

So what

Is there a good reason for the selling? Yes and no.

No, because, so far as I can tell, there's no negative news afoot that would explain why investors are selling off these three stocks in particular, on this particular day. No name-brand analysts have suddenly downgraded shares of any of the three companies, cut their price targets, or issued similarly negative commentary on their prospects. The companies themselves haven't issued any worrisome press releases on future earnings, either.

But also yes, because -- while it's not new news exactly, when you consider that Etsy stock has more than doubled in price over the past 52 weeks, that Stamps.com has tripled, and that Sea Limited has more than quadrupled (up 366%, to be precise) -- the truth of the matter is that shareholders of all three stocks have accumulated a lot of paper profits of late. These are profits they're loathe to lose, and that may encourage them to do a bit of selling so as to "lock in" their gains.

Now what

If you ask me, that's what's been happening these past two days: The stock market as a whole has been climbing for five straight months, and on Thursday investors stopped at the peak, took a look around at the valuations they've been paying for tech stocks, and were struck by a sudden, acute case of acrophobia.

They noticed that Sea Limited sells for 24 times sales -- not earnings -- while Etsy costs 14 times sales, and Stamps.com a more down-to-earth but still not cheap seven times sales, and all of a sudden they began asking themselves, "Have I become irrationally exuberant; and is it possible these valuations are not sustainable?"

Then they answered "yes" and created a self-fulfilling prophecy as everyone rushed for the exits at once. This, in a nutshell, is what happened to Sea Limited, Etsy, and Stamps.com stocks today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Etsy and Sea Limited. The Motley Fool recommends Stamps.com. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Stamps.com Inc. Stock Quote
Stamps.com Inc.
STMP
Etsy, Inc. Stock Quote
Etsy, Inc.
ETSY
$106.99 (-6.52%) $-7.46
Sea Limited Stock Quote
Sea Limited
SE
$67.11 (-4.13%) $-2.89

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

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