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Why Sea Limited Stock Slumped Again Today

By Rich Smith – Nov 17, 2021 at 11:02AM

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Analysts duel over Sea's earnings report.

What happened

Sea Limited's (SE 1.23%) stock price slide is accelerating today. On Tuesday, shares of the Singapore-based e-commerce, payments, and online gaming company slid more than 3% after the company reported better-than-expected sales for the third quarter but a huge earnings miss. Today, that share slide is turning into an avalanche, with Sea Limited stock down another 10% as of 10:15 a.m. EST.

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

What caused today's sell-off? It's not immediately obvious, because while one investment bank, Citigroup, did lower its price target on Sea stock, a second bank, UBSraised its target. What's more, the new targets of $416 and $380, respectively, are both well above where Sea shares sit today.

That hardly seems a good reason why investors would be selling the stock. But last night, right after earnings came out, analysts at Bank of America also tweaked their price target on Sea, to $385 a share. What was different about this note, however, was that BofA also downgraded Sea Limited stock to neutral, pulling is previous buy rating.

Now what

As Bank of America explained in a note covered on StreetInsider.com, Sea Limited's new guidance released yesterday implies slowing fourth-quarter growth in the company's gaming division, partly offsetting the continued strength of the company's growing e-commerce business. At the same time, the bank foresees an increase in e-commerce losses -- and not a small increase, either.

According to BofA's latest calculations, Sea is likely to lose a staggering $5.72 per share this year (nearly twice the losses it previously expected) and then lose another $4.45 per share next year -- four times what BofA had forecast previously for 2022.

When you take this forecast in conjunction with the fact that, as BofA points out, Sea is up 67% year to date, it's no great surprise it is suggesting investors might want to quit this stock while they're still ahead.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sea Limited. The Motley Fool has a disclosure policy.

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