Shares In Europe's Pandemic Winners Are Being Heavily Punished After Disappointing Earnings

Shares In Europe's Pandemic Winners Are Being Heavily Punished After Disappointing Earnings
Reda Farran, CFA

over 2 years ago1 min

Shares of companies from Asos to Zalando and Logitech to TeamViewer have all suffered steep losses after their results or guidance last quarter disappointed investors.

Investors had previously flocked to these pandemic winners, buying into companies that can grow their earnings no matter the cost and pushing up their stock valuations to extreme levels. Just look at the forward price-to-earnings ratio of European tech stocks compared to the wider market.

The valuation gap between European tech stocks (Stoxx 600 technology index) and the market (Stoxx 600 Europe index) has widened significantly since the pandemic. Source: Bloomberg
The valuation gap between European tech stocks (Stoxx 600 technology index) and the market (Stoxx 600 Europe index) has widened significantly since the pandemic. Source: Bloomberg

But with high valuations comes high expectations. And when those expectations weren’t met, investors hit the exits. Part of the reason why investors are less forgiving today is because of rising competition for their hard-earned investment dollars. After all, there are plenty of cheaper stocks, think pandemic underperformers, that are starting to see their sales growth rebound as lockdowns ease in most of Europe.

So if you’re invested in any pandemic winner stocks with high valuations, watch out for increased volatility and potential sell-offs – especially during the days the companies report earnings or provide trading updates.

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