What happened
After a rough Tuesday in the stock market for growth stocks, lots of these same stocks rebounded sharply on Wednesday. Three notable stocks that all jumped 4.4% or more today are DocuSign (DOCU 0.10%), Shopify (SHOP -2.37%), and Slack Technologies (WORK).
The three growth stocks saw the following gains on Wednesday:
- DocuSign stock rose 5.2%.
- Shopify shares jumped 6.9%.
- Slack Technologies stock increased 4.4%.
Image source: Getty Images.
So what
Highlighting the market's bullishness on Wednesday, the S&P 500 rose 0.8%. The tech-heavy Nasdaq Composite, however, jumped more than 2%, capturing how tech stocks drove the market's rally.
Even including these stocks' sharp gains on Wednesday, it has still been a rough week for growth stocks. Consider how all three of these stocks are still down sharply for the week, despite rising higher on Wednesday. DocuSign, Shopify, and Slack are down 10%, 9%, and 7%, respectively, since the week started.
A sell-off in many growth stocks started on Monday when news broke that Pfizer saw promising results in human trials for its COVID-19 vaccine. The vaccine reportedly prevented over 90% of symptomatic infections for tens of thousands of volunteers. Some investors may be betting that some of the high-flying tech stocks that have benefited from stay-at-home trends could cool off.
E-signatures specialist DocuSign, e-commerce giant Shopify, and virtual collaboration platform provider Slack all have business models that benefited from tailwinds resulting from people spending more time at home.
Clearly, however, some investors believed an initial sell-off resulting from reports of successful COVID-19 vaccine human trials was overdone, triggering these stocks' surge higher today
Now what
The optimistic investors behind Wednesday's gains could be proven right over the long haul. Investors should keep in mind that all three of these companies were growing rapidly before the coronavirus outbreak. This will likely remain true after the outbreak as well.
For the 12-month period ending Jan. 31, 2020, DocuSign and Slack reported year-over-year revenue growth rates of 39% and 49%, respectively. Shopify's full-year 2019 revenue rose 47% year over.
It's arguable that COVID-19 has permanently accelerated the underlying tailwinds driving these companies. For instance, many organizations are likely doubling down on digital transformations or even reinventing themselves after being forced into unprecedented circumstances that put the spotlight on how important technology has become.
Data from a recent IBM study, for instance, found that the pandemic accelerated the shift to digital shopping by about five years. Further, many tech companies have similarly cited anecdotal evidence of accelerated adoption of digital services.
Sure, it wouldn't be surprising to see decelerated revenue growth rates from many fast-growing tech companies when a vaccine is released and when COVID-19 cases begin to come down. But given these companies' momentum before the pandemic, even decelerated growth will likely be impressive.
