Most investors understand that a good stock is an even better buy when its price has been lowered. But, it doesn't necessarily hold that a stock with a lowered price is more ownership-worthy than it was before it shed value. Sometimes, the price of a particular company's shares is falling for good reason.
That's the conundrum a great number of investors may be dealing with right now. While they may have size and be listed on the world's most respected stock exchange, are the NYSE's biggest losers of the past year worth taking a flyer on now?
Generally speaking, no.
Worst of the NYSE's worst
The names of some of 2021's New York-listed bottom dwellers are shocking, although not as shocking as the lousy performances their stocks have dished out of late.
Case(s) in point: Previous Wall Street darlings like Pinterest (PINS 0.21%), Chewy (CHWY -0.12%), RingCentral (RNG -2.14%) are found among the 10 worst-performing large-cap stocks of the past year, down 51%, 45%, and 53%, respectively.
Image source: Getty Images.
Those aren't the worst of the NYSE's worst, mind you. Chinese stocks KE Holdings, Tencent Music Entertainment, and Lufax Holding are technically the worst of the worst NYSE listed large-cap stocks for the time frame in question, with each losing more than 60% of their value. Alibaba is the mix with its 48% setback as well.
The rout of so many of China's U.S. listed equities, however, can be chalked up to the country's regulatory crackdown on many of its businesses that casts a shadow of uncertainty as to their futures. RingCentral, Chewy, and Pinterest are down in a big way simply because the market lost its once-bullish interest.
And that's the tricky part of the puzzle for bargain hunters here. RingCentral, Pinterest, and Chewy may well have been deep in the hole for the past year, but most of their big pullbacks can be chalked up to the scope of their big gains logged in and shortly after 2020.
The chart below puts things in perspective. While down more than 50% in the past year, shares of Pinterest had rallied more than 360% between the end of 2019 and its February peak. Chewy has given up 45% its value achieved thanks to its 300% bullish romp. RingCentral gained 140% through 2020 and early 2021 before falling more than 50% over the course of the past 12 months.
Simply put, these stocks were ripe for lots of profit-taking. Investors just capitalized on the opportunity, which eventually evolved into self-fueling sell-offs.
At one point, though, investors couldn't get enough of these three names.
A great story never really goes away
And that's an important detail.
On proverbial paper, the market rewards the stocks of companies with solid products or services that can generate earnings -- and growth -- for the indefinite future. And it values stocks based on the perceived risks and rewards of being in these businesses, using competitors' stock valuations as reference points.
In reality, the market doesn't operate with that much reason or consistency, especially in the short run. Stories can matter more than valuations. Being in a particular industry can be more important than being profitable. In many cases, hype and hope can take on such a life of their own that even the analyst community will firmly a support an unproven company. That support was certainly in place for these three stocks back in 2020 and early 2021. The subsequent rallies just moved too far and too fast to hold, setting the stage for big pullbacks over the course of most of last year.
Here's the thing: Neither these companies' stories nor analysts' support of them has actually changed since their stocks' pullbacks materialized. The consensus price target for Pinterest still stands 60% above the stock's current price. RingCentral is worth more than nearly twice the stock's present price. Currently trading near $54 apiece, Chewy shares are undervalued by nearly 30%, according to the consensus price target of $75.71. These big NYSE stocks are down only because the majority of investors lost sight of their bigger pictures, and instead opted to lock in profits. Given that the market fell in love with them all in a big way at one point, though, it can and likely will do so again.
Moreover, there's nothing like the beginning of a new calendar year to hit the mental reset button.
Always be thinking bigger-picture
This isn't always the case, mind you. Sometimes, stocks may shine brilliantly for a while and then move into a well-deserved nosedive that never ends. Groupon comes to mind. Consumers love deals, and small businesses love growing their reach. The business model itself, however, was deeply flawed. Other times big sell-offs may be temporary, but with no end to their woes in sight. That's where China's stocks like Tencent Music and Alibaba are at this point. Again, simply buying stocks because they've been beaten down isn't enough of a reason to buy them.
The flip side is that a poorly performing stock isn't always an indictment of a company's prospects. It can't hurt to explore these names, particularly when they're well-established, NYSE-listed names that are only down because investors' love for them just turned a little overzealous, setting the stage for long-term profit-taking.
In other words, stock picking is still ultimately a case-by-case affair. Recent performances are only part of the story.
