Please ensure Javascript is enabled for purposes of website accessibility

Why Sea Limited, Etsy, and Stocks Sank Today

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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 (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 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 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 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 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 The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned Inc. Stock Quote Inc.
Etsy, Inc. Stock Quote
Etsy, Inc.
$106.99 (-6.52%) $-7.46
Sea Limited Stock Quote
Sea Limited
$67.11 (-4.13%) $-2.89

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.