April was an important month in the stock market. Investors and analysts eagerly combed through new quarterly earnings reports and picked apart corporate commentary on the uncertain economic environment.
During the month, several stocks made major waves in the market, illustrating broader trends that should dictate returns for the next few months. Let's take a look at four of them.
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1. Tesla
Share prices of Tesla (TSLA -1.06%) tumbled 21% in April, largely on the news contained in its quarterly earnings report. The electric vehicle leader reported 18% year-over-year revenue growth for the first quarter, while its gross margin declined nearly 10 percentage points to 19.3%. The shrinking gross margin was also reflected in the bottom line, with operating profits and net income both tumbling more than 20% year over year. This margin compression was caused by a combination of rising raw material costs and Tesla reducing its product prices.
Tesla's forward P/E ratio was around 60 at the start of April. That valuation assumes a great deal of future success from the EV maker. The company's share price wasn't sustainable without high revenue growth and stable margins.
When bad news dampens the outlook for growth stocks, these sorts of downward movements are common. Amid difficult macroeconomic conditions with the threat of recession on the horizon, don't be surprised if other stocks with expensive valuations experience similar dynamics throughout earnings season.
2. Cloudflare
Cloudflare's (NET -3.34%) stock price tumbled 24% in April, with nearly all of the drop occurring after its quarterly earnings report was posted on April 27. The company beat analyst estimates for quarterly revenue and earnings, but investors were concerned about slowing growth and Cloudflare's weak outlook. Cloudflare's price-to-sales ratio was over 20, which proved too expensive as investors soured on the company's prospects and the medium-term potential for cybersecurity stocks in general.
Industry peers such as Okta, Zscaler, and CrowdStrike also endured big losses in April. Like Cloudflare, these companies are struggling with tough economic conditions, and growth investors are losing confidence due to slowing sales and shrinking margins. CrowdStrike's investor day was received poorly earlier in the month, setting the stage for choppy times ahead in the cybersecurity and enterprise cloud software-as-a-service industries.
3. D.R. Horton
Things were better elsewhere in the market, with homebuilder D.R. Horton (DHI -0.21%) climbing more than 12% in April. Wall Street was impressed by the company's commentary on demand in the housing market during its quarterly earnings call. The positive outlook built upon better-than-expected data from the housing market, with single-family housing starts and building permits moving sharply higher in March.
This is an unexpected macro trend. High interest rates, inflation, and slowing economic growth have curbed demand for housing, and recent turmoil in the banking sector led many to speculate that increased lending standards would exacerbate those issues. However, the job market has remained relatively stable, and consumer spending has been resilient, contributing to a housing sector that's outperforming expectations. That dynamic helped D.R. Horton's peers, such as PulteGroup, which also delivered big returns in April.
4. Meta Platforms
April was a good month for tech giants, with Meta Platforms (META -1.12%) leading the way. The stock jumped 13.4% last month after impressing Wall Street with its quarterly earnings report. The company exceeded expectations for both revenue and earnings, it provided bullish commentary on AI developments, and it laid out a strong growth outlook. Meta has struggled with various headwinds over the past year, so a combination of cost-expense controls with accelerating growth was a pleasing proposition for investors.
Meta provided the most extreme example, but its tech peers Alphabet, Microsoft, Amazon, and Apple also conspicuously outperformed the S&P 500 last month. Investors have been impressed by both the earnings results and commentary from these sector leaders. These stocks have also evolved into a safe haven for many investors who are worried about a potential recession but aren't willing to give up entirely on growth.
