Unprofitable high-growth stocks have a new profitability mentality, and investors are loving it
High-growth stocks have been brutally punished this year. The more unprofitable and overvalued they were, the harder they fell.
But suddenly, everyone wants to be Mr. Krabs — taking on a profitability mentality — and investors are loving the new mindset.
In recent weeks, several stocks made major moves after shifting their focus towards profitability or having reported improving earnings.
Here are some examples…
….and they’re all down 70-90% from their peaks.
1/ Meta (NASDAQ:META) — $META is up nearly 20% since WSJ reported Meta was planning cost cuts. Meta confirmed 11K layoffs a few days later.
2/ Sea (NYSE:SE) — Southeast Asia’s e-commerce giant jumped 40% this week after reducing their losses by 17.8% from $450M to $370M in the recent quarter. They plan to break even by the end of 2023.
3/ Compass (NYSE:COMP) — a tech-focused US real estate brokerage — jumped 44% last Friday after their CEO said they’re bringing down costs with the goal of becoming cash-flow positive by 2023.
For many companies, the easiest way to cut costs is downsizing. After all, labor is a company’s largest expense. And tech companies have taken on a lot of excess capacity in recent years.
Per Layoffs.fyi, 834 tech companies have laid off over 134K employees in 2022 — even worse than the dot-com layoffs. And we may just be getting started.
Investors: Setting us up for 2023
These factors are setting up big moves among growth stocks in the coming months:
- Companies may begin to report earnings with improving profitability — which could change investor attitudes.
- Markets also expect the Fed to slow the pace of interest rate hikes in December.
Remember yesterday when we said the stock market isn’t the economy? Keep that thought front of mind.
The Average Joe: “Tough decisions this Black Friday — buy a new TV or some heavily discounted stocks?”