New Lows

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The good news is stocks are getting less expensive. The bad news is that’s happening because they’re falling. The price-to-sales ratio of the average stock in the Russell 1000 is back to pre-pandemic levels, falling roughly one-third from its 2021 highs.

Cheap stocks aren’t bringing down the average, it’s the expensive stocks that are doing it. The highest decile of stocks in the Russell 1000 traded at an average of 35x price-to-sales towards the end of last year. Now they’re below 20x.

We’re seeing new lows today from the biggest pandemic winners and it’s happening after a failed rally, which pours salt into an open wound. ARKK, the epicenter of the selling, rallied ~40% from the middle of March through the end of the month. April ripped away all of those gains. This failed rally comes after a 65% drawdown! The fact these types of gains got ripped away so quickly is…not bullish.

The price declines are truly remarkable. Shopify, one of the biggest pandemic winners, has given up all of its relative outperformance versus the S&P 500 going back to January 2020. The stock is now 74% off its highs. 74%!!!

Some other numbers: Zoom is in an 82% drawdown. Zillow, Roku and Teladoc are down 80%. DocuSign and Netflix are down 71%. Coinbase is down 65%. Needless to say, these are massive, massive losses.

It’s easy to say this, because I’m not in these names, but there are going to be some wonderful buying opportunities, if we’re not there already. I have zero doubt that some of these companies are going to look like an absolute steal in a few years. You and me and a lot of other people are going to feel very stupid for not buying Shopify (I’m picking this out of a hat, not advice, etc) at a $55 billion market cap.

Josh and I are going to cover the washout and much more on tonight’s What Are Your Thoughts?

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