What happened
Shares of visual search and media company Pinterest (PINS -0.52%), edge computing specialist Fastly (FSLY -0.47%), and financial technology company Block (SQ -1.57%) all took a hit on Thursday. As of 2:30 p.m. ET, the three stocks were down 3.9%, 6.5%, and 7.1%, respectively. At their worst points during the trading day, Pinterest stock was down 4.4%, Fastly had slipped 7.5%, and Block had declined 7.8%.
These stocks have seen significant pressure this year, along with many other growth tech stocks. Weakness in these types of stocks on Thursday is a continuation of broad-based pressure on growth tech stocks as investors contemplate the potential impact of an evolving interest rate environment and growing tensions between Russia and Ukraine.
Shares of these three stocks have cratered this year, falling 29%, 31%, and 53% year to date, respectively.
So what
Highlighting a rough day for tech stocks on Thursday, the tech-heavy Nasdaq Composite was down 1.6% at the time of this writing. But many growth tech stocks fell several percentage points or more at one point during the trading day.
These three companies definitely fit the growth tech stock description. They trade at pricy valuations relative to slower-growing and more mature companies. Fastly has a $2 billion market capitalization with just $354 million in 2021 revenue and a loss of $223 million during this period. Pinterest and Block are profitable but trade at very high price-to-earnings multiples of about 54 and 350, respectively.
In a market in which interest rates are likely to rise, some investors may be more averse to risky assets like these, which are priced largely for their earnings potential in future years. Investors may also be looking for stocks with less speculative valuations as they assess the economic threat of Russia's invasion of Ukraine.
Image source: Getty Images.
Now what
Investors, of course, hope that these companies' bottom lines will grow substantially in the years ahead. And there is some credibility to expectations for these companies to eventually rake in meaningful profits; all three have demonstrated signs of business models that can become more lucrative as they scale. But investors seem to be demanding more certainty in this market. So, until these three tech companies can reveal a clearer path to substantial profits, or until the market's appetite for highly valued growth stocks recovers, shares of these companies could continue to trade at suppressed valuations relative to multiples they commanded earlier this year.
