Is It Time to Buy the Nasdaq’s 4 Worst-Performing February Stocks?

If you like bargain stocks, there’s certainly no shortage of them right now. Even some of the most notable Nasdaq-listed stalwarts like Meta Platforms (NASDAQ: FB) — you know it better as Facebook — and up-and-comers like Affirm Holdings (NASDAQ: AFRM) are on sale at a deep discount.

Before going on a buying spree of beaten-down stocks, though, take a deep breath and think it through. While no stock worth owning remains undervalued forever, the excitement of being able to dive into some of these well-known tech names may be obscuring much bigger risks. Let’s take a closer look at four of February’s worst-performing Nasdaq Composite stocks

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4 stocks finally paying the piper

If you’re wondering, PayPal Holdings (NASDAQ: PYPL) is one of February’s biggest Nasdaq-listed laggards, losing 35% of its value last month. That ties with the 35% loss logged by the aforementioned Affirm. Long-lived PayPal, however, is now down 65% from July’s peak price, making it the most notable loser of the two. Confluent (NASDAQ: CFLT) isn’t far behind, falling 34% last month, while shares of Facebook-parent Meta Platforms fell a little more than 32% in February. Like PayPal, Meta extended (and accelerated) a sell-off that’s actually been underway since September.

With or without military conflict in Ukraine, these aren’t the sorts of performances you’d expect to see from these sorts of stocks of these sorts of companies. It seems like a buying opportunity and it’s understandable if you’re licking your proverbial chops.

Before stepping into any of them, though, take a step back and look at the bigger picture.

Yes, they look like bargains here. It’s rare to see any stock fall more than 30% in a month and remain at that newly lowered price. It would also be amiss to dismiss the reality that factors like the resurging spread of COVID-19, rampant inflation, the rise of cryptocurrencies, political theater, and even Russia’s military invasion of Ukraine — while the stuff of riveting headlines — tend not to hold the market and its key stocks down for very long.

There’s something big going on here, however, that’s a bit difficult to put your finger on. In a philosophical sense, months-turned-into-years of excess and indiscriminate speculation are finally coming back to haunt the stock market. The Nasdaq’s biggest losers last month serve as the proverbial poster children for that idea.

Take Affirm as an example. While it looks like a conventional lender on the surface, it actually aims at a piece of the borrowing market where consumers can quickly get themselves into debt trouble. A study performed by Credit Karma suggests that the average loan size of the fairly new buy-now, pay-later credit market is between $50 and $1,000, and is most frequently used to purchase home goods, furniture, electronics, and clothing.

The option to finance relatively small amounts blurs the lines between needs and wants. To this end, about a third of these buy-now, pay-later borrowers have fallen behind on what were supposed to be manageable payments of a near-term loan.

Meta Platform’s Facebook is another example of how too much of a good thing can still be too much.

While the social networking website was a much-needed means of connecting to the rest of the world in the midst of the pandemic, in many ways that flood of web traffic exacerbated the platform’s already-existing problems. Chief among those problems is the fact that the bigger Facebook became in terms of user headcount, the more unwieldy (and even toxic) it grew.

For the first time ever, the social media site’s average daily user count contracted during the quarter ending in December. It was a small decline to be sure (only about 1 million people). But all big trends start out as small ones, and its user growth has been slowing for a few quarters now. Continued user declines are a legitimate concern.

As for PayPal, while it’s still the leader of the digital payment space, serious competition is now creeping in. That too was inevitable.

Not like past pullbacks

None of this is to suggest Meta, Affirm, Confluent, and PayPal are doomed. Facebook and PayPal will certainly survive, and young Confluent’s recent plunge looks temporary in nature, linked to last quarter’s results and the fact that the new stock is still finding its bearings. Volatility can be expected. The only questionable name in the bunch is Affirm, which is one of many buy-now, pay-later outfits being scrutinized by the Consumer Financial Protection Bureau. A reshaping of what the company is and how it’s allowed to do business may be in the cards.

The sheer depth of these recent sell-offs, however, quietly points to the market’s bigger rethinking of how sustainable the world’s largest consumer-facing technology companies really are. This is a relatively new concern, and not the sort of worry the market’s participants will be quick to shrug off.

In other words, no, steep sell-offs aren’t enough of a reason to start scooping up what used to be some of the Nasdaq’s hottest stocks. There’s more in play here than just the usual (and short-lived) bearish volatility we’ve typically seen over the course of the past couple of years. This could take a while to sort out, making these names lag as the process plays out.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Affirm Holdings, Inc., Confluent, Inc., Meta Platforms, Inc., and PayPal Holdings. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.

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