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Why Stock Crashed Today, Erasing a Recent Surge

By Anders Bylund – Nov 10, 2021 at 2:02PM

Key Points

  • Speculative traders set Monday's stock up for a sharp correction despite impressive business results.
  • A rapid cool-down made the stock safe to touch after an overheated run-up to the earnings report.

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The provider of codeless programming platforms and other business software crushed Wall Street's targets in the third quarter. Investors had been hoping for an even bigger surprise.

What happened

Shares of (MNDY 1.39%) are having a bad case of the Mondays this fine Wednesday. The stock fell as much as 21.2% in the morning, lingering at a slightly milder 18.5% loss as of 12:30 p.m. EST. The company posted robust third-quarter results early in the morning, but the analyst-stumping report wasn't enough to sustain Monday's surging share prices.

So what

Monday provides software-as-a-service (SaaS) tools that help companies both large and small build and manage their digital business needs, ranging from customer relations to building mobile apps.

Third-quarter revenue surged 95% above the year-ago reading, landing at $83 million. Adjusted net losses stopped at $0.26 per share, compared to a loss of $0.81 per share in the third quarter of 2020. Analysts had expected a loss of roughly $0.60 per share on top-line sales near $74.7 million.

Monday's management also provided revenue guidance far ahead of the current Street view for the fourth quarter. The company is experiencing strong customer loyalty while its footprint in the enterprise-scale market more than tripled from the year-ago reading.

Office worker watching a large red charting arrow crashing down through the floor at their feet.

Image source: Getty Images.

Now what

It's quite rare to see a sharply negative price change for companies that just reported results way above Wall Street's expectations, but this move needs some context. The company's equally impressive second-quarter report triggered a massive share price gain that worked out to 71% for the month of August, and investors were champing at the bit to catch the next massive surge. So the stock rose 26.8% on enormous trading volumes in the two days leading up to this report. Under these circumstances, it would have taken a record-breaking home run of a report to live up to the market's impossibly high expectations.

So the stock has retreated to prices last seen on Monday morning. Monday still trades at sky-high valuation ratios such as 70 times trailing sales and 21 times the company's book value. That's a much safer point of entry than the speculative price spike of the last couple of days.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ltd. The Motley Fool has a disclosure policy.

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