What happened
Following an upbeat few trading days for growth stocks, as they started to rebound from a tough few months, many of these same names are taking a breather on Thursday. Connected TV specialist Roku (ROKU -0.22%), innovative insurance company Lemonade (LMND 1.14%), and telehealth platform provider Teladoc Health (TDOC -0.76%) are three companies that saw nice gains earlier this week but are declining sharply today.
Here are these three stocks' losses as of 1:25 p.m. ET:
- Roku: down 5.9%.
- Lemonade: down 5%.
- Teladoc Health: down almost 5.6%.
Image source: Getty Images.
So what
Earlier this week, all three of these stocks benefited from strength in the overall market -- particularly among growth stocks. But much of Roku's outsize gain earlier this week came from news that the company finalized a multiyear deal with Alphabet's YouTube and YouTube TV to be available in the Roku app store. Highlighting the three stocks' upward momentum, Roku, Lemonade, and Teladoc are all up 17%, 6%, and 4%, this week, respectively -- even including their pullbacks today.
Shares of the three stocks are likely down simply because some investors and traders may be taking profits in a very volatile and uncertain market. Investors seem to be on edge in December, due to a new coronavirus variant and news that the Federal Reserve is considering doubling the pace of its bond purchase tapering and raising interest rates at a more aggressive pace than the Fed previously indicated.
Now what
While it's always possible that a change in the interest rate environment could negatively impact growth stocks, investors should remember that the market is forward-looking. In other words, investors may have already priced in both uncertainties from a new coronavirus strain and the estimated impacts from higher interest rates.
Supporting this argument, Roku, Teladoc, and Lemonade shares have been slammed recently. The three stocks are down 28%, 31%, and 37% over the past three months and down 28%, 52%, and 62% year to date, respectively.
Over the long haul, moderate increases to interest rates are unlikely to have significant impacts on these three companies' underlying financials. So investors should be cautious about making investment decisions on narratives like this.
As it turns out, analysts expect massive increases in revenue next year for all three of these companies. Roku's revenue is expected to increase from an estimated $2.8 billion in 2021 to $3.8 billion in 2022. The consensus forecast for Lemonade's 2022 revenue is $215 million, up from an estimated $127 million this year. Finally, analysts are modeling for Teladoc's revenue to grow from an estimated $2 billion in 2021 to $2.6 billion next year. If these companies can really pull off growth like this, their shares deserve to trade at high premiums, making sell-offs of these stocks potential buying opportunities.
