Last year was a lousy one for the overall market. But it was downright awful for what should have been some of the market's more resilient names. Over 400 NYSE-listed stocks lost more than half of their value in 2022; over 20 of them lost more than 90% of their value.
Smart investors know several of these setbacks were made in error or were at least exaggerated. That's why looking among these laggards for potential purchases is not a crazy notion. But before you step into the exchange's three worst performers of 2022 just because they fell more than most, take a step back and look at the bigger picture.
Here's that look.
Worst of the worst (and why)
For the record, these aren't the New York Stock Exchange's very biggest losers of 2022. We'll exclude small caps and micro caps as eligible investment prospects simply because these stocks pose more risk than most investors should take on. Considering just the investable large caps and mid caps, last year's big NYSE laggards are Asana (ASAN 5.90%), Twilio (TWLO 2.94%), and Wayfair (W 5.52%). The first two tickers fell a little more than 81% in 2022, while Wayfair lost nearly 83% of its value.
It's not too terribly difficult to figure out what went wrong. Take Wayfair as an example. Economic weakness tends to crimp discretionary spending first and foremost, leaving the online retailer of home goods particularly vulnerable to the environment. To this end, the company missed its revenue and earnings estimates with last February's report of its 2021 fourth-quarter results, kicking off a string of similar shortfalls later in the year. Indeed, sales are down 13% through the first three quarters of 2022, prompting a major swing out of the black and into the red. Shareholders have always had to give the up-and-comer lots of wiggle room, but last year's results are proving a major test of their patience.
Twilio shares tumbled for similar reasons. That is, disappointing results. While it started the year on the right foot, the customer communication platform missed second-quarter and third-quarter outlooks and further undermined its stock's value with lackluster Q4 guidance. The company's expectation for revenue growth of between 18% and 19% is not only below analysts' forecasts, but it also suggests slowing growth.
As for Asana, it should come as no surprise that it, too, is suffering from a streak of earnings shortfalls and tepid guidance. The only difference? It started 2022 on the defensive. The management software name warned shareholders in March that it would be booking bigger-than-expected losses for the first quarter of the year despite better-than-expected revenue for the period. The dynamic didn't change over the course of the remainder of the year either, as losses are still expanding in step with revenue growth.
The question remains, however: Did the sellers overshoot their targets, making these names juicy buys as a result?
No.
A tough truth
It's tempting, to be sure. Veteran investors and even newcomers have certainly seen the market overreact to headlines, only to unwind the mistake shortly thereafter. Surely many of last year's bigger losers will end the current year much higher.
In the case of Asana, Wayfair, and Twilio, though, such a recovery might not be in the cards this year -- or ever.
It may be a somewhat unpopular point to make within some investor circles. But in many ways, the steep sell-offs in question ultimately reflect a reckoning of sorts. Investors were hopeful for -- even bullish on -- these companies immediately before, during, and even as the worst effects of the COVID-19 pandemic greatly eased. In retrospect, though, it's becoming clear these organizations may never be able to live up to the hype, even under the best of circumstances.
Take Twilio's core SMS technology, for instance. It's already being questioned as obsolete. As Jeffries analyst Samad Samana wrote in November, "Twilio successfully selling the software solutions in its portfolio has been a significant element of our thesis that has not materialized."
Asana was downgraded by RBC Capital Markets analyst Rishi Jaluria in the middle of last year because the firm "cannot underwrite a substantial market opportunity for Asana." Jaluria explains, "While Asana customers we've spoken to like the product, we do not believe the space is broadly applicable outside tech companies ... we do not view this as a sustainable business model." Investors increasingly believe in RBC's stated concerns.
All of this is happening at a time when even profitable tech titans like Alphabet and Microsoft are cutting costs. If these powerhouses are bracing for something worse, smaller players like Asana and Twilio are surely in a heap of trouble.
In this case, a stock's steep sell-off isn't inherently a buying opportunity. These big-time routs are the very warnings they look like they are. If you're looking for deeply discounted bargains here, just make sure their underlying businesses are built to thrive. Not every company is built to do so in every environment.
