The Cloud once was a place as dreamy as it sounds for investors, but lately the upward arrows have started pointing down.
On a recent episode of the Mad Money TV Show, Jim Cramer said he looked at 50 of the major cloud stocks, including his self-anointed cloud "kings" and "princes," along with some of the most widely held among ETFs. What he found was not good.
A full 49 of the 50 names has fallen more than 10%, with the average decline coming in at 33%. The median cloud stock has lost 29%. Why is this a problem? Because at their peak, the average cloud stock traded for 27 times sales. Today they still trade for a lofty 18 times sales, which means the bottom is still not at hand, Cramer said.
Beyond inflation, there are many reasons for this decline, Cramer explained. Some of the cloud stocks were pandemic plays like Zoom Video (ZM) and DocuSign (DOCU) , which are in less demand now than a year ago. Others were newly-minted IPOs that came in too hot for the market to handle.
Real Money’s Kevin Curran recently noted that Zoom has contributed to the declines in the ARK Invest’s Innovation ETF over the past few months. "It is imperative that every investor does the necessary study before allocating their hard-earned dollars to ETF products,” Curran wrote on Real Money, “especially amidst the seemingly endless options available at the moment.”
While it only takes a few bad earnings reports to taint the entire group, Cramer was not willing to count them all out quite yet. Investors need to be very careful with the cloud stocks. So when will we see the bottom in the cloud stocks? Cramer turned to the end of 2018 for that answer. In December, 2018, ironically, the markets sold off after Fed Chair Jay Powell told investors he was willing to overshoot on interest rates to keep inflation at bay. Those comments caused a 24% decline in the Nasdaq and sent the average cloud stock down 35.5% before the bottom was reached.