The 2023 win streak of the Nasdaq Composite has come to an end. After five straight winning months, the tech-heavy index pulled back in August, falling a modest 2.2%, as a second-half recovery helped avert what looked like a correction.
As you can see from the chart below, all three major indexes performed similarly poorly last month:
Sometimes these temporary declines can offer buying opportunities. The Nasdaq 100 is a subset of the Nasdaq Composite that focuses on its largest and most influential companies. If you're wondering who the biggest losers were in the Nasdaq 100 last month, you're in luck: Let's take a look at the three worst performers.
Image source: Getty Images.
1. Fortinet (down 23%)
Fortinet (FTNT 0.23%), the legacy cybersecurity company best known for its firewall protection, has been a long-term winner on the stock market. But it got tripped up by a weak earnings report last month.
The company beat bottom-line estimates in the quarter. Revenue in the quarter rose 26% to $1.29 billion, just shy of expectations for $1.30 billion. However, billings only grew 18% to $1.54 billion, sparking some concern among investors as the metric tends to be an indicator of what future revenue growth will look like.
Fortinet actually raised its earnings-per-share guidance for the year from between $1.44 and $1.48 to between $1.49 and $1.53. But it cut revenue guidance from its prior range of $5.43 billion to $5.49 billion to a new range of $5.35 billion to $5.45 billion, a sign that improving profitability is coming from cost controls rather than faster revenue growth.
Macro headwinds appear to be impacting Fortinet: Sales cycles have lengthened and contract lengths have shortened. However, those headwinds should be temporary. Meanwhile, investors have an opportunity to scoop this high-margin growth stock at a discount.
2. Dollar Tree (down 21%)
Like Fortinet, Dollar Tree (DLTR 0.04%) suffered from a disappointing quarterly earnings report. The report came toward the end of August, but the stock was already on the decline before then.
Dollar Tree posted solid results in the second quarter, beating estimates on the top and bottom lines, but guidance for the third quarter was weak. The discount retailer, which also owns Family Dollar, said comparable sales rose 6.9% across the business in the second quarter. However, the company cited margin pressure from sales mix and theft.
Higher expenses -- due in part to a difficult comparison as it transitioned to its new $1.25 price point last year -- led its adjusted earnings per share (EPS) to fall from $1.60 to $0.91.
Third-quarter EPS guidance of $0.94 to $1.04 indicated that margin pressure would persist; that range was significantly below Wall Street's expectation of $1.28.
Management did say it continues to target EPS of at least $10 by 2026; that should give the stock some upside potential. But investors may want to wait for a deeper pullback to buy the stock, as the valuation is only average right now.
3. JD.com (down 20%)
JD.com (JD 6.12%) has struggled since Beijing's tech crackdown began more than two years ago. And the stock slid steadily over the course of August, due to weak economic data out of China and its own middling earnings report.
China is still having trouble reigniting its economic growth after extended COVID-19 lockdowns. July data showed that retail sales, industrial output, and investment were all weaker than expected.
The country also suspended its release of youth unemployment data, which spooked some investors.
In JD.com's second-quarter earnings report, the company topped estimates on the top and bottom lines. But revenue grew just 7.6%, showing that JD.com is still far from recapturing its pre-pandemic growth rate. While profits also improved in the quarter, that didn't seem to be enough to please investors.
JD.com has a number of competitive advantages, including its logistics network. Yet the company is still being pressured by a weak Chinese economy. Until that changes, investors should tread lightly.
