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Why Shopify, MercadoLibre, and Sea Limited Stocks Sank Today

By Rich Smith – Sep 8, 2020 at 12:18PM

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The tech sell-off continues. Overvaluation may be to blame.

What happened

Picking up where they left off last week, tech stocks resumed their decline Tuesday. Everywhere you look -- all around the globe -- e-commerce shares are getting hit hard this morning.

As of 10:45 a.m. EDT, shares of U.S. e-commerce facilitator Shopify (SHOP 0.67%) are still down 3.2%, while Argentine e-commerce star MercadoLibre (MELI -4.12%) is off 2.3%, and Sea Limited (SE -2.13%) in Singapore is down 2.2%.

Big red arrow trending downward over a stock chart

Image source: Getty Images.

So what

Why are all of these e-commerce stocks sinking? That's an excellent question... Next question, please.

Fact is, there doesn't seem to be any clear-cut reason for why those companies' shares are tumbling today. If you scan the news feeds, you'll find no evidence of analyst downgrades, price target cuts, or earnings warnings from any of the three companies. No news at all, in fact, for several days running.

Painful as it is to admit it, it really appears that these stocks are going down simply because investors are selling them -- and not because they're selling them for a particular reason.

Now what

It's not just me saying this, either. Financial news site MarketWatch, which usually at least attempts to suggest a plausible reason for broad-based market sell-offs such as the one we're in the middle of today, basically threw up its hands in confusion this morning, unable to do more than just guess that "the momentum-led gains for the [tech] sector had finally pushed valuations too far to be sustained."  

Of course, if overvaluation is the reason for the sell-off, then it could be some time before valuations get cheap again and the selling stops. Shopify stock currently sells for more than 476 times forward earnings estimates, while MercadoLibre costs 208 times forward earnings, and Sea Limited (which, according to analysts polled by S&P Global Market Intelligence, won't turn profitable before 2022 at the earliest) costs an infinite multiple to its projected negative earnings next year.

If investors have to wait for these stocks to return to reasonable valuations before they can begin rising again, it may be a very long wait.

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

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Stocks Mentioned

Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$815.01 (-4.12%) $-34.99
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$28.76 (0.67%) $0.19
Sea Limited Stock Quote
Sea Limited
SE
$53.81 (-2.13%) $-1.17

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

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