Shares in Adobe also came under intense selling pressure, by association. It was the worst-performing Standard & Poor’s 500 stock on that same day — but the drop, while a steep 8% in a single day, was far milder by comparison. Plus, it has since recovered nearly all lost ground. Adobe shares are not exactly cheap either — priced at 47 times forward earnings — but it is part of the smaller group of cloud software companies that are actually profitable.
The higher you rise, the more painful the fall. This is generally true in life and certainly true for many high-flying stocks, and especially those that are loss-making and trading on lofty expectations and valuations.
Case in point: Cloud software stocks as a group were hit hard the previous week. The selloff was triggered by weaker-than-expected 4Q2021 guidance by a market darling, DocuSign. Its shares were routed on Dec 3, falling by a whopping 42%, which wiped US$19.4 billion ($26.5 billion) off its market cap. The stock has rallied strongly during the pandemic on expectations of robust growth but the company has yet to turn a profit. It was trading at almost 24 times trailing sales — yes, sales revenue, not profits — right before the selloff.
