Some of the stocks that saw skyrocketing growth during the peak of the COVID-19 pandemic as shutdowns prompted massive changes in spending are finally falling back to earth as the world claws its way back to relative normalcy.
When lockdowns began across the United States in March 2020, very few thought that it would be months before they returned to in-office work, shopped at stores, or went on vacation, although for many people, that soon became the reality.
During that time, the stock market swung wildly, and the country entered a recession. And while the market, propped up by slashed interest rates and massive government spending, quickly rebounded, some stocks exploded in value. Many of those company stocks, such as Zoom, Peloton, Wayfair, and Chewy, are now plummeting in value nearly two years later.
At the start, investors saw the pandemic as an opportunity to make huge gains on companies that stood to benefit from offices and stores being closed and from the health crisis in general. For instance, because of the lack of in-person communication, video conferencing app Zoom became a household name.
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At the beginning of 2020, shares of Zoom were trading under $70 per share. Just months later in October, as the world eased into the new normal of teleconferencing, Zoom’s stock hit about $560 per share, a jaw-dropping 700% increase.
Since peaking during the pandemic, the company’s share price began a slow but steady tumble and is now valued at less than $150 per share as people have started to return to in-office work and feel safe enough to visit with family amid a country flush with vaccines.
Another stock that experienced a meteoric rise during the pandemic was Peloton, a company that sells exercise equipment.
Going into March 2020, shares of the personal fitness company were trading at just over $20, but as the realization dawned that gyms would be shuttered or restricted for months to come, the company boomed in popularity. Its at-home workout bikes and treadmills became a staple of pre-vaccine life. By the end of December 2020, that $20 share was now pushing above $160.
But with the vaccines came gyms reopening and less demand for Peloton. The company’s value started to tumble in 2021, and shares are almost back where they started before the pandemic, trading at under $30.
Prior to the vaccine rollout, many people felt uncomfortable shopping in stores but still needed home furnishings, especially for the growing number of in-home offices. Many turned to companies that would deliver home goods and furnishings to their doorstep, such as Wayfair.
After initially seeing its price drop off at the start of the pandemic, reaching a trough of less than $30 per share in March, Wayfair shares increased to more than $340 just a few months later. Trading remained strong through much of the pandemic, but near the tail end of this past year, the company’s stock price began dropping and now is trading at less than $139 per share, about half of what it was trading for more than a year.
Online pet food and product retailer Chewy, which obviates trips to the pet store, was trading under $30 per share pre-pandemic but peaked at nearly $120 at the beginning of last year as people were inoculated. It has since slid greatly in value and is now trading at $38 per share.
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The soaring stock prices that peaked for so many specialized companies amid the worst of the pandemic were never poised to have stuck around, said Chase Hinderstein, senior portfolio manager with the Wise Investor Group at Baird.
He told the Washington Examiner that stocks were being traded at levels that were completely “unsustainable beyond any reality.”
Hinderstein said that during the peak of the pandemic, the overall U.S. market was being driven by unprecedented levels of liquidity and stimulus, which is now finally starting to be drawn down and in turn is affecting the market in a “pretty dramatic way.”
“It was driven by demand for the asset. It was driven by liquidity and the exuberance and enthusiasm,” he said, adding that the prices were not based on the reality of many of these companies’ sales or business fundamentals. “No resemblance of a reality there.”
Another factor at play in the recent drawdown in value of certain stocks is increased competition.
David Sacco, a practitioner in residence at the University of New Haven finance department, noted that companies such as Zoom exploded in popularity and dominated their competitors because early in the health crisis they were able to maintain capacity for expansion and able to keep up with the sudden explosion of demand.
As video conferencing has become more ingrained in society with continued remote and hybrid work, other competitor platforms are gradually becoming more common.
“The ones that jumped out in the initial leap because they had the infrastructure ready to go are now losing a little market share as the other companies ramp up and catch up in those spaces,” Sacco said.
With product-specific delivery companies that flourished during the pandemic, such as Chewy and Wayfair, Sacco said that their main competition is going to be shipping giant Amazon.
“The question is, as Amazon builds out its infrastructure to capture more market segments, it’s going to be tougher for those guys to compete with Amazon’s logistics infrastructure,” he told the Washington Examiner. “I think now the question is, ‘Does Amazon maybe scoop up some of those companies as opposed to building their own infrastructure in a specific space?’”
The trajectory of the COVID-19 pandemic is still very unclear. While the worst of the pandemic appears to be in the rearview mirror, new variants such as delta and omicron have caused some anxiety that the virus could mutate and kick the country’s recovery back a notch.
Still, Hinderstein said he doesn’t think there is a value proposition in betting on further pandemic boosts for the companies that thrived during shutdowns.
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After nearly two years, the U.S. has a better understanding of the virus and has gotten better at handling the health situation.
“You can’t say ‘never,’” he said. “Aliens could always land on the South Lawn of the White House.”
