When investors see stocks down 15% to 20% in a single day after earnings disappointments, it can cause panic for many investors. Near-term fears can wipe out long-term investing plans in a hurry. And investors who see such large drops should rarely expect to see those shares come roaring back in a short period of time.
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So what happens when Wall Street collectively keeps telling its clients to stay the course by maintaining Buy and Outperform ratings after horrible reactions to earnings and guidance? This is exactly what is happening with Marvell Technology, Inc. (NASDAQ: MRVL) and MongoDB, Inc. (NASDAQ: MDB) on March 6, 2024. Each company’s guidance indicated some growing pains and a right-sizing of expectations.
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Marvell was down over 16% and MongoDB was down about 22% after the first 90 minutes of trading. And both stocks were already approaching two-times a normal day’s trading volume just in their first hour (and with pre-market trading).
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While many analysts downgrade stocks on disappointing guidance, Wall Street analyst reports are by and large maintaining Buy and Outperform ratings on both companies. Where investors will have a problem now, particularly those who were expecting solid reports, is that the price target cuts are in some cases almost horrific.
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Long-term investors who want to stick by a bullish thesis are now going to have to have much lower expectations for what their exit prices will ultimately be. Oggonomics always reminds its readers and investors that no single analyst report should ever be the basis to buy or a sell a stock. But what happens when there is almost a singular response from the cadre of analysts?
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Both companies have their roles in cloud and AI orders, and most of the weakness in the shares seems pointed at temporary issues and reactions around AI themes. Does that make each drop a golden opportunity, or does each drop just represent an earnings trap that will look quite ugly in the weeks and months ahead?
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Short-term traders may be playing each stock from the long and short side of the equation, many long-term investors may have found their limit orders and stop orders executed at prices well under what would have already triggered those stop loss trades due to the gap-down opening levels being so much lower.
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Now for the big question — do investors feel like they accidentally invested in meme stocks (a.k.a. “Stonks”)?
MARVELL TECHNOLOGY
- Barclays maintained its Overweight rating but cut its price target to $130 from $150.
- BofA Securities maintained its Buy rating but slashed its price objective down to $120 from $150.
- Citigroup maintained its Buy rating but cut its target to $122 from $136.
- KeyBanc Capital Markets maintained its Overweight rating but cut its price target to $115 from $135.
- Loop Capital actually upgraded Marvell’s rating to Buy from Hold with a $110 price target.
- Morgan Stanley maintained its Equal-Weight rating but also lowered its price target to $90 from $113.
- Piper Sandler maintained its Overweight rating but slashed its price target to $95 from $120.
- Stifel maintained its Buy rating but cut its price target to $115 from $130.
- TD Cowen maintained its Buy rating but slashed its target to $95 from $125.
While BofA is not the highest price target remaining after the earnings report, here is its investment rationale: Through a series of strategic acquisition and divestitures, MRVL has transformed into a data center silicon leader, with a robust IP portfolio well positioned to address secular growth opportunities across cloud data centers, 5G infrastructure, advanced autos, enterprise networking and security markets that can drive 20-25% long-term sales and 25-30% long-term EPS growth.
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Marvell was last seen down 16.5% at $75.25 with a $65 billion market cap. Its prior close was $90.14 and its 52-week range is $53.19 to $127.48. Marvell is still valued at about 26-times expected earnings and roughly 8-times expected revenues even after this drop. NASDAQ’s most recent short interest data was as of Feb. 14, and that was 19.53 million shares short as of that date.
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MONGODB
Wells Fargo formally downgraded MongoDB’s rating to Equal-Weight from Overweight, and the firm slashed its target price to $225 from $365 after revenue and margin guidance disappointed investors. The firm sees a smaller number of large and long-term contracts weighing on expectations for fiscal years 2026 — and also sees this as a transition year with significant growth deceleration pushing its shares lower into a rangebound story.
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Here are the rest of the calls maintaining ratings on MongoDB but with price target cuts:
- Barclays maintained its Overweight rating but cut its price target to $280 from $330.
- BofA maintained its Buy rating but slashed its price objective to $286 from $420.
- Canaccord Genuity maintained its Buy rating but cut its price target to $320 from $385.
- Loop Capital maintained its Buy rating and its $350 price target.
- Morgan Stanley maintained its Overweight rating but cut its price target to $315 from $350.
- Oppenheimer maintained its Outperform rating but cut its price target to $330 from $400.
- Piper Sandler maintained its Overweight rating but slashed its price target to $280 from $425.
MongoDB was last seen down 22% at $206.00 with a $16.6 billion market cap. The prior day’s close of $264.13 is now against a new 52-week range of $200.23 to $413.87. The stock is still valued at nearly 75-times expected earnings and about 7.2 times expected revenues for the current fiscal year. NASDAQ’s most recent short interest data as of Feb. 14 showed there were only about 2.12 million shares short as of that date.
