These Plunging High-Growth Stocks Are Still Long-Term Winners

Don't misjudge the long-term performance of these stocks based solely on recent short-term declines.

Dan Caplinger
Dan Caplinger
Apr 5, 2014 at 11:30AM

On Friday, the S&P 500 (SNPINDEX:^GSPC) dropped almost 24 points, falling back from all-time record levels earlier in the week. Even the S&P's 1.25% decline paled in comparison to the drops for some high-momentum stocks. Still, when you look at the performance of these stocks over the longer run, even the severe falls that they've experienced since the beginning of March haven't put a huge dent in the profits that longtime shareholders have earned on these companies. Some of the best examples are Tesla Motors (NASDAQ:TSLA) and 3D Systems (NYSE:DDD), each of which has posted serious pullbacks from their recent highs. Let's take a closer look at these and other high-growth stocks to put their share-price movement into perspective.

No pain, no gain
There's no questioning that Tesla Motors and 3D Systems have done a lot worse than the broader market recently. Since the end of February, the S&P 500 has actually gained ground, but Tesla Motors has fallen 13%, while 3D Systems has undergone a 27% decline.

For Tesla Motors, the pullback over the past month has come after huge gains from earlier in the first quarter. Fourth-quarter and full-year 2013 results in February sent the stock soaring, as Tesla met its gross margin goals and beat its own expectations on Model S sales. Moreover, initiatives like its Supercharger stations and its Gigafactory battery production facility boosted hopes that Tesla Motors could become more than just a car company by also promoting advances in battery technology for other industries as well. Even after Tesla Motors' fall in March and early April, the stock is still up more than 525% since the beginning of 2013.

Source: 3D Systems.

3D Systems suffered from a different problem, as investors reacted negatively in the aftermath of its late-February earnings report. A Barron's cover story in early March following the report pointed the finger at high-flying 3-D printing stocks like 3D Systems, noting their expensive valuations by traditional metrics like earnings multiples. Moreover, adjusted earnings actually fell for 3D Systems during the quarter, even as revenue soared by more than 50%. Still, even after falling 40% from its December highs, 3D Systems has still given investors long-term gains of 55% over the past 15 months.

Tesla Motors and 3D Systems aren't the only stocks that have seen these pullbacks after stratospheric rises. In the social-media and biotech spaces, shareholders have seen a number of falling stars come back to earth over the past month as momentum investors get nervous. But those who've held onto those stocks for longer periods of time still have extensive profits even at these lower levels.

The thing investors need to remember about Tesla Motors, 3D Systems, and other volatile high-growth stocks is that they're prone to fits of sharp moves in either direction. Only by keeping your emotions in check and reining in potentially irrational responses can you hope to capitalize on the long-term opportunities that these short-term pullbacks offer.