The WAAAX stocks are normally viewed as the ASX's answer to the US FAANG group. Sure, WiseTech Global Ltd (ASX: WTC), Appen Ltd (ASX: APX), Altium Ltd (ASX: ALU), Afterpay Touch Group Ltd (ASX: APT) and Xero Limited (ASX: XRO) don't have the same universal recognition and appreciation that Facebook, Apple, Amazon, Netflix and Alphabet (Google) do. But still, as a homegrown group of successes, Aussie investors would (I'd say) be genuinely proud and appreciative of our compatriotic tech tall poppies (especially those who invested in them more than three months ago).
But I myself am holding out. I'm holding out because I'm worried – worried about their (sky-high) prices, sure. But I'm also worried about how some WAAAXers will fare once our stock market and economy inevitably takes a turn for the worse.
Let me explain.
During a recession and the accompanying stock market crash, growth shares like the WAAAX group are always punished to a higher degree by the market. For example, in the late year market correction we saw last year, the S&P/ASX 200 (INDEXASX: XJO) saw a roughly 11% decline over three months. Altium shares plunged nearly 30% in the same period.
Of course, now we are seeing new all-time highs, but it pays to be aware of what's likely to happen to your beloved WAAAX shares if things turn sour.
Another thing that worries me even more is if a real recession does hit, the first thing to dry up is liquidity of credit (aka the desire of banks to loan money). Two WAAAX stocks in particular are yet to become profitable and currently run at a loss – Xero and Afterpay.
These companies run on debt and the promise of big profits down the road. For now, lenders are (as the Americans would say) drinking the Kool-Aid, but if there is a crisis of credit, I don't know how many lenders are going to be doling out loans to a loss-making company in a recession. If there is a serious downturn, it is possible that Afterpay and Xero will be under a lot of strain.
Foolish takeaway
Of course, although it's possible, I don't think these companies will hit the wall, even if there is a recession. But their share prices might. Just some things to keep in mind about your favourite WAAAX growth stocks….
