Why Most Growth Stocks Shouldn't Trade at the Premiums They Were
One of the biggest mistakes investors can make during a bear market is to assume a stock that is down significantly is automatically a buy. The truth is, a lower stock price, higher cost of capital, and more uncertain operating environment combine to create a strong case for a lower intrinsic value estimate than investors were calculating in a rosier environment.
Consider Roku (NASDAQ: ROKU) and Shopify (NYSE: SHOP). The two growth stocks are both down nearly 80% over the past year. But their lower prices do not automatically mean shares are bound to rebound sharply. Indeed, for many growth stocks, a significantly lower stock price should lead to a materially lower intrinsic value estimate from investors.
Here are three ways the current operating environment has shifted some tangible factors investors should be considering in their estimate of a stock's value.
Source Fool.com
