Stocks that fell in love during the pandemic pay the price for any lost profits

Online retailers, food delivery companies and online retailers are paying a heavy price for disappointing profits.

Companies from Asos Plc to Zalando SE and Logitech International SA suffered huge losses on the European stock market following their results last month. It's a fact that makes companies with exorbitant valuations look increasingly volatile and shows that investors are less inclined to buy growth at all costs.

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The volatile dynamics also exacerbate the distinction between stocks that can be described as pandemic winners and everything else on the market. It has been a stunning earnings season for most European companies, and "hit and rise" looks the norm, helping to push the Stoxx Europe 600 Index to its highest level since March. But for the few stocks that enjoyed frenzied popularity during the shutdown, overvaluation is taking its toll.

"We are past the stage where investors will invest in anything," Janet Mui, investment director at Brewin Dolphin, said by phone. "Investors are starting to differentiate. Investors are looking for quality and predictability."

Certainly the trend is mixed. Many stocks have recovered from weak profits and are still trading near record highs. As เทรด Exness learned, shares in meal kit maker HelloFresh SE fell 8.7% in intraday trading on Friday after it said it would be less profitable than forecast, but closed down only 2.5% for the day. It is still up more than 20 per cent this year.

But investors aren't all that lenient. Shares in Asos fell 18 per cent after the online retailer said it expected sales to decline, while remote software maker TeamViewer AG fell 14 per cent after reporting weaker-than-expected results.

"Some were ahead of reality," said Freddie Light, chief investment officer at Latitude Investment Management. "Next year is going to be a challenging one."

One reason investors are less tolerant is that competition is intensifying. There are many cheaper stocks with strong sales growth and money is flowing into cyclical companies. Light said he sees an opportunity to buy stocks that fared poorly during the pandemic, such as beverage makers Diageo Plc and Heineken NV, which were able to push through price increases.

It's a trend that has persisted all year. Just Eat Takeaway.com NV, Ubisoft Entertainment SA and Ocado Group Plc are among the biggest companies to lose ground in the Stoxx 600 in 2021, each down more than 16%.

Expensive stocks initially fell in value from February as bond yields rose on higher inflation. Yields could resume their upward trajectory this autumn as the Federal Reserve sets deadlines for ending support for the economy, which would put new pressure on higher-priced stocks.

The lack of momentum in online stocks comes at a particularly tough time for investors, as the tightening regulatory pressure in China on the nation's internet giants is also draining nerves.

"The market is struggling to assess long-term sustainable growth going forward," said John Flynn, portfolio manager at State Street Global Advisors. "This is hampered by the somewhat volatile growth levels seen in the previous four quarters."

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