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Why Sea Limited Stock Was Down on Tuesday

By John Ballard – Sep 28, 2021 at 1:28PM

Key Points

  • Sea still makes up more than 1% of Wood's ARK Innovation ETF.
  • Wood sold Sea but added shares of several other growth stocks.
  • The decision could be due to valuation, as Sea expects its e-commerce business to grow revenue by 121% for the full year.

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Investors followed Cathie Wood's lead by hitting the sell button.

What happened

Shares of Sea Limited (SE 4.76%) were trading down 5.9% at 11:41 a.m. EDT on Tuesday, following news that CEO Cathie Wood of ARK Invest had sold some shares on Monday. 

Wood's ARK Innovation ETF (ARKK 1.12%) still held 654,161 shares of Sea Limited as of today, representing slightly over 1% of the fund's holdings. 

Two people using a mobile phone to shop.

Image source: Getty Images.

So what

The stock has been on a tear over the last few years, as Sea's e-commerce and gaming businesses have expanded at a rapid pace. The company reported strong revenue growth of 65% in digital entertainment and 161% growth in e-commerce in the second quarter. The stock is up 58% year to date on top of more than a 2,000% gain over the last three years. 

Three different Wall Street analysts have upgraded the stock in the last few weeks, with a price target ranging from $380 to $400. However, the stock is expensive after its recent advance, trading at a high price-to-sales ratio of 23. 

Wood is likely seeing better opportunities elsewhere, as she also bought several other stocks on Monday, including Coinbase Global, Robinhood Markets, DraftKings, and Peloton Interactive

Now what

Sea is quickly emerging as a leading global player in e-commerce and mobile gaming. In the second quarter, its Shopee app was the most downloaded on mobile app stores globally, and Free Fire continued to rank as the top-grossing mobile title, according to App Annie. 

Management raised its full-year guidance and now calls for e-commerce revenue to increase by 121.5% over 2020. Digital entertainment bookings are expected to grow 44% year over year. 

Still, investors should be cautious about paying a high valuation at this stage of the bull market, especially with the company recently choosing to issue additional shares to finance the growth of the business, which shows that even management is trying to take advantage of a frothy share price. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Peloton Interactive and Sea Limited. The Motley Fool has a disclosure policy.

Stocks Mentioned

Sea Stock Quote
$61.15 (4.76%) $2.78
Ark ETF Trust - Ark Innovation ETF Stock Quote
Ark ETF Trust - Ark Innovation ETF
$37.90 (1.12%) $0.42
Peloton Interactive Stock Quote
Peloton Interactive
$11.77 (3.43%) $0.39
DraftKings Inc. Stock Quote
DraftKings Inc.
$15.52 (1.30%) $0.20
Coinbase Global Stock Quote
Coinbase Global
$45.27 (-1.01%) $0.46
Robinhood Markets Stock Quote
Robinhood Markets
$9.87 (2.92%) $0.28

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

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