Those U.S. stocks that have been cut in half

The US stock market is still in a bull market, at least judging by the indices. However, many star stocks have been acting erratically, plummeting day after day in recent months, with their performance collapsing rapidly. It's hard to believe that this is the same market.

The stock prices of some high-flying star stocks are as fragile as paper, collapsing at the slightest touch. For most stocks that are still trading at high valuations, they also need a wake-up call. After all, these stocks that have been halved in value were often the market leaders in the past.

Is it all due to performance disappointments? This is the core reason for the sharp decline in the stock prices of many companies, but upon closer inspection, it's not entirely the case.

1. Looking at it from a performance perspective

First, let's take a look at one of the most representative bull stocks in the US consumer industry, elf Beauty. As an affordable beauty company in the US, elf has maintained growth rates several times higher than the industry average, continuously capturing market share from L'Oreal and Estee Lauder. Estee Lauder has been experiencing negative growth for two years, while elf's growth rate is still doubling. Although it's expensive, its future prospects are excellent, so its stock price has been soaring along with its performance.

This year, elf has continued its strong growth performance, but the growth rate in Q2 dropped by 50% compared to the previous year, leading to a decrease in overall growth momentum.

Looking at the broader environment, the consumer goods sector is generally not performing well, with other beauty brands continuing to experience negative growth. Therefore, elf's performance stands out. Additionally, in the latest quarter, there has been some improvement in profit margins, with an increase in EBITDA margin and gross margin. The full-year sales guidance has also been slightly raised, from an initial growth of 20-22% to 25-27%. This can be considered an earnings report that exceeds expectations.

However, despite the good growth rate, the market had given it a PE ratio of 90 times, which it couldn't withstand even a slight storm. Although the growth rate is good, the valuation range is also quite large. Even if the PE ratio is reduced to 50 times, it's not a particularly low valuation.

Interestingly, the company's declining growth rate seems to have already been priced in.

When the quarterly results were announced in May, the full-year growth expectation of 20-22% was already given as a precaution. If the decline in growth rate was the reason for the stock price drop, it should have happened earlier. However, the stock price quickly rebounded in May, returning to high levels, indicating that investors agreed that the company's growth prospects and industry position justified the high valuation Now almost every indicator has been raised, but after the latest quarterly performance announced in August, this performance that exceeded expectations did not lead to an immediate rebound, but further significant decline.

Here, we can also see the asynchrony of the positive feedback of high-valuation stocks, which is almost consistent with the A-share market where negative news does not lead to a drop, and positive news leads to selling.

In the US stock market, it seems that stocks rise when performance exceeds expectations and fall when it falls short, but in reality, it is not always the case. Sometimes, a company's stock price surges despite poor financial reports, and then slightly drops after a slight improvement, manipulating "your expectations" and "market expectations".

For the stocks that are currently surging in the US stock market earnings season, are their performances really good? It may be a forced interpretation, accepting the market's pricing, and selling off when the next quarter's financial report exceeds expectations.

As for ELF, which is currently trading at a reasonable valuation based on expected performance and growth rate, the market is starting to worry again about whether the performance can be delivered as expected. Is a PE ratio of 30-40 times relatively high compared to a growth rate of 20-30%?

When everyone sees a 20% annual growth, a valuation of 80-90 times, and a continuous rise in stock price, how can they not doubt its pricing?

Compared to playing with reverse performance, most stocks behave normally by crashing when there is bad news. For example, DeKang Medical, a company that develops continuous glucose monitoring devices, has a high long-term valuation, slow growth but strong sustainability. After adjusting the full-year growth rate expectation to 0%, its competitor Abbott raised its full-year performance forecast, causing a sudden 40% drop.

The collapse of high-valuation stocks can happen in an instant, but it is also possible to linger for another round.

II. Misjudgment

Another category of companies has also experienced significant declines during this period, all of which died due to misjudgment of reversals. Either the assumption was wrong, or the timing was wrong.

When these stocks were rising, their fundamentals were flawed, and their performance was not good, but they were all given expectations of a reversal. Just like airline stocks during the pandemic, despite huge losses, their stock prices kept rising because everyone knew that after the bottom of the cycle, there would likely be a significant profit release, so the price increase was cashed in early.

As a leader in memory, Micron undoubtedly bet on the resurgence of chip demand after the outbreak of AI. Its performance is far from historical highs, still in a loss-making state this year, but with the high demand for HBM memory technology in AI computing, the company's position in the ecosystem is high, and reaping the dividends is a matter of course.

From a performance perspective, there is indeed quarter-over-quarter improvement, with expectations of reaching a historical high in the 25th fiscal year. HBM is also ramping up as expected, but the issue is that the stock price hit a historical high early on, while it will take another year for revenue to recover to the new high The proportion of HBM has increased, but it can be observed that with the company's revenue at the same level as in 22, the profit margin is only half of what it was back then. The road to restoring the historical high profit margin is long, which leads to the current PE level even higher than the peak of the chip in 21.

If the revenue remains the same and the profit margin is halved, then it is reasonable for the stock price to be halved as well, right? Of course, the key issue is that the stock price has risen too fast.

Similarly, following the same logic, there are also a series of leading chip manufacturing companies such as LRCX. Compared to NVIDIA, they can indeed be considered as pseudo AI hitchhikers.

However, these two companies can only be said to have misjudged the pace. The logic of recovery is correct, and performance is gradually improving, but the improvement is far behind the stock price performance. However, some companies have made wrong assumptions.

Looking at Intel, against the backdrop of U.S. protectionism, as the darling of the U.S. digital chip manufacturing industry, it has received a lot of support. Forcing TSMC to return to the U.S. to build a factory has also raised TSMC's costs, indirectly helping Intel.

Intel has also changed its CEO, the design department has started using external fabs, stopped buybacks, and strives to catch up with TSMC in process technology and catch up with AMD in market share. They have done everything they can.

Everyone is looking forward to Intel getting back on track. Due to the previous underperformance against AMD and NVDA, with the attitude of benchmarking AMD's market value, and Intel vigorously promoting the concept of Ai pc, believing that this will greatly promote the company's business growth, Intel's stock price doubled a year ago.

Unfortunately, Intel did not seize the opportunity. Ai pc did not take off, but instead, a new generation of consumer products with flaws emerged, the process could not keep up, and the previous advantages were lost. In the background of the continuous recovery of the chip industry, revenue remains stagnant, and profits continue to decline.

As a result, the company's stock price fell before the financial report, continued to fall after the financial report, all the way south, hitting a new low for many years. Does anyone really think that the probability of surpassing TSMC, AMD, or NVIDIA just because the stock price rose last year?

And as one of the most dazzling vaccine stocks during the epidemic, MRNA has made much greater strides in the development of new products using mRNA technology compared to another mRNA leader, Biontech, burning money in clinical trials with all its might to compete for the first-mover advantage in this field Despite the previous product disclosing poor data, spending lavishly, and significantly shrinking cash reserves compared to BNTX, the market still gave the pioneer a premium, and the stock price surged nearly twice in the past year.

However, as the company's clinical data continued to be released, none of the data was impressive, and there was no breakthrough in the market. Running fast did not translate into faster monetization and higher profits. The company continues to expect losses for the next two years. Eventually, the stock price plummeted repeatedly, giving back all the gains in less than 3 months.

The company's surge in the first half of the year was also astonishing. Many people also doubted whether they underestimated the determination of mRNA technology and the capabilities of Moderna. At that time, the stock price of BNTX hardly moved and was considered "wrongly conservative." However, the results also show that market trends do not always align with performance trends.

The decline of MRNA was not caused by a specific financial report. The company announced a commercial setback on September 12, canceling pipelines, cutting expenses, and dropping by 12%. But it had already been halved before that.

The company started to collapse in May, which was when the company's mRNA RSV vaccine was approved. This vaccine is the first mRNA technology product after the pandemic.

There were not many bright spots in the data, just speed. The efficacy was not much better than the old products, but this efficacy issue had been disclosed since Phase 3, and the stock price rose. By May, when the company could start generating revenue from it, it collapsed. It's hard to say this wasn't intentional.

Smart Stock Prices

Of course, there is also a type of company performance that is classic: first falling, then coming out with negative news, such as the star stock of the AI industry, AMD.

Recently targeted by Hindenburg Research for short selling, with high attention, mainly focusing on issues of premature revenue recognition and related transactions, the company also struggled to respond, delaying financial reports. However, before this, the company's stock price had already deviated from the overall AI industry, independently halving. Almost everyone couldn't understand why it was so different from NVIDIA or Dell. At the valuation level under the latest performance guidance, it is also close to its peers.

Now that the negative news is out, all the declines have been rationalized, and it's too late to run. How to avoid such risks? Perhaps in February, when the daily turnover rate exceeded 60%, and a small company with daily turnover ranking in the top five in the entire U.S. stock market, one should have been vigilant!

Another example of falling first and realizing later is Energizer, an astonishingly rising beverage stock. Since the first half of the year, the stock price has been in free fall, dropping by almost 70%. Everyone was still unclear why, but as the performance was disclosed quarter by quarter, the YTD revenue went from 95% to 36% to 23%, and then it became clear why

High valuation is a problem, but another issue is that this company has not experienced exaggerated declines after each financial report. Compared to the collapse of Dekang Medical's financial report, which dropped by 40%, this company announced a 1.7% decline in Q1 performance and a 2.3% decline in Q2 performance, showing exceptional calmness. However, days of calmness without any waves are collapsing every day.

Companies with such performance basically indicate that there are smart money inside, with someone always knowing the performance in advance and being good at market operations. There are too many such companies in A-shares and Hong Kong stocks, it's hard to compete with them. Moving to the US stock market may have fewer of these, but it doesn't mean there are none.

Conclusion

From these stocks in the US stock market that suddenly collapse, there are several experiences that can be summarized.

Firstly, do not easily accept the market's high valuation. Good news does not necessarily lead to an increase, and an increase is not necessarily due to good news. Is the US stock market completely priced based on quarterly results? Not really. Most of the time, it is similar to the Chinese market, playing with expectations and unexpectedly unloading.

During a decline, sometimes it is accompanied by good news, sometimes by bad news, but high valuation is always more dangerous.

Predicting a turnaround in a difficult situation and cashing out in advance requires caution. The increase in the stock prices of MRNA and Intel was quite tempting for a period of time. However, if the time for the performance to increase is too slow, or even completely deviates from the actual situation, then caution is needed. The companies with the highest increase in stock prices are often the ones that break through historical highs in growth rates the most