Investors watching the Nasdaq Composite (^IXIC +0.89%) have had to sit by as other major market indexes get all the attention. Even as other benchmarks climb to record highs, the Nasdaq is still shy of its best levels, even though it's posting a modest 0.2% gain as of 2 p.m EDT on Friday afternoon.
Part of the problem stems from some beaten-down names that are going through some struggles. The big question ahead is whether the moves downward for those falling stocks will prove to be bargain-hunting opportunities or become symptomatic of longer-term problems. Today's big losers on the Nasdaq include WD-40 (WDFC +0.52%) and Chuy's Holdings (CHUY +0.00%), and we'll take a closer look to see whether long-term investors should agree with the traders who have sent their shares sharply lower on Friday.
A slippery day for WD-40
Shares of WD-40 dropped more than 13% on Friday afternoon. The maker of the eponymous lubricant released solid gains in its fiscal second-quarter results, but investors didn't seem to appreciate the growth the company produced.
WD-40's financials looked more than reasonable at first glance. Revenue climbed 12% compared to prior-year levels. Net income climbed 20% year over year, producing earnings of $1.24 per share. But even that level of growth wasn't enough to satisfy shareholders, who had hoped for even bigger bottom-line growth of closer to 30%.
Investors may also anticipate that some of the tailwinds that have helped WD-40 could disappear. CEO Garry Ridge noted that high demand for its products has come from renovation activity during the pandemic, and so the disappearance of what Ridge calls "isolation renovation" could be problematic. Supply-chain issues are also hampering WD-40's short-term efforts, although the company sees problems easing by the second half of 2021.
WD-40 has been on an amazing run, but its valuations have grown higher than usual. A break in the bull rally seems reasonable, and it's good to see WD-40's fundamental business continue to perform well even under challenging conditions.
Are investors losing their appetites?
Shares of Tex-Mex restaurant king Chuy's Holdings were down almost 6% in afternoon trading on Friday. The stock has seen a big jump in anticipation of full reopening of the U.S. economy, but stock analysts aren't as certain about its prospects as shareholders seem to be.
A Chuy's burrito. Image source: Chuy's Holdings.
Analysts at Stifel downgraded the restaurant stock from buy to hold, and their $45 per share price target was below the all-time high level Chuy's hit on Thursday. But their primary concern was valuation after a huge rally that has seen the Tex-Mex restaurateur's shares double since November. Over the long haul, Stifel believes that if the price were to get below $40 per share, the analysts would be more likely to support investing in Chuy's.
Chuy's has reined in its growth plans somewhat, compared to previous years. In March, the company said it would look to open four to six new restaurant locations during the current fiscal year. That's a slowdown from the pre-pandemic pace of expansion, but it reflects some caution about just how quickly diners will return to restaurants.
Some investors draw comparisons between Chuy's and Mexican fast-casual giant Chipotle Mexican Grill (CMG 2.97%), but fans of the smaller Austin-based restaurant chain have pride in its originality and its refusal to cater to investor-driven moves like franchising and uniformity. That might not be ideal for Chuy's investors, but those fortunate enough to have a Chuy's location nearby have to appreciate the high-quality food and atmosphere.
Both of these stocks have risen high enough that investors shouldn't worry about pullbacks. If the businesses continue to improve, then future share price gains are definitely possible.
