Please ensure Javascript is enabled for purposes of website accessibility

Why Square, Netflix, and Pinterest Stocks Fell Sharply Thursday

By Daniel Sparks - Mar 25, 2021 at 7:13PM

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

The sell-off in growth stocks continued on Thursday. But are high-quality growth stocks like these oversold?

What happened

Shares of financial technology-specialist Square (SQ -4.25%), streaming-TV company Netflix (NFLX 1.56%), and visual search and media platform Pinterest (PINS -0.99%) were all hit hard on Thursday. The three stocks ended the day down 2.4%, 3.5%, and 2%, respectively. But shares of these companies were all down about 5% at their worst points during the trading day.

The three stocks' declines reflect broader market bearishness toward growth stocks. This has been an overarching theme in the market since mid-February, with growth stocks getting hit particularly hard during the last few trading days.

A chart showing a stock price moving lower.

Image source: Getty Images.

So what

Since Feb. 15, shares of Netflix, Pinterest, and Square are all down 9%, 19%, and 23%, respectively. This compares to only a 0.6% decline for the S&P 500. With all three of these companies squarely fitting the definition of a growth stock, it's not surprising to see them getting hammered along with most other stocks in the same category.

Of course, growth stocks may have been overdue for a breather. They had a huge run-up in 2020. For instance, Square, Netflix, and Pinterest stocks soared 248%, 254%, and 67%, respectively, in 2020. This compares to a 16% gain for the S&P 500.

Now what

Investors shouldn't worry too much about these stock-price movements. It's important to remember that stocks are more attractive investments at lower prices than they are at higher prices, assuming everything else about a business' long-term prospects is unchanged -- and for Netflix, Pinterest, and Square, this seems to be the case.

All three of these companies are firing on all cylinders as the economy reopens. Consider their fourth-quarter results. Square's fourth-quarter revenue increased 23% year over year when excluding Bitcoin revenue. Its gross profit surged 54% year over year to $804 million.

Netflix's fourth-quarter revenue increased 21.5% year over year as streaming members reached 204 million -- up from 167 million in the fourth quarter of 2019. Finally, Pinterest's fourth-quarter revenue skyrocketed 76% year over year as monthly active users jumped 37% year over year to 459 million.

Looking ahead, analysts expect more strong double-digit top-line growth from all three of these companies in 2021. Even more, analysts are modeling for outsized earnings growth over the next five years as the three companies' scalable business models benefit from significant operating leverage.

While all three of these stocks weren't cheap before they began selling off, it's important to note that their business models, competitive positioning, growth trajectories, and long-term earnings potential justify premium valuations.

Investors may want to look closer at stocks like these to see if this recent sell-off represents a potential buying opportunity.

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

Netflix, Inc. Stock Quote
Netflix, Inc.
$186.35 (1.56%) $2.87
Block, Inc. Stock Quote
Block, Inc.
$83.44 (-4.25%) $-3.70
Pinterest Stock Quote
$22.91 (-0.99%) $0.23

*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 service.

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 05/22/2022.

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.