Has COVID-19 killed the ASX WAAAX shares?

Whatever happened to the high-growth WAAAX shares like Appen? 2021 seems to have killed them dead, at least in terms of investor returns…

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asx share price falling lower represented by investor wearing paper bag on head with sad face

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Rewind to the blissful time before the COVID-19 pandemic, and WAAAX was an acronym that ASX investors were tossing around with fevered excitement. The ‘ASX’s answer’ to the US FAANG stocks, the WAAAXers were growing quickly and amassing incredible amounts of cash for shareholders. If you’re not familiar with the FAANG acronym, don’t worry. It stands for Facebook, Inc. Common Stock (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMAN) Apple Inc (NASDAQ: AAPL) and Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL), which of course used to be called Google.

The ASX’s answer was WAAAX: WiseTech Global Ltd (ASX: WTC), Appen Ltd (ASX: APX), Altium Limited (ASX: ALU), Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO).

WiseTech Global managed to put on almost 750% between May 2016 and September 2019. Altium managed roughly 470% over the same period. Appen was a top performer, adding more than 1,000% over that period, as did Afterpay. And Xero put up a still-respectable 300% or so of gains.

Well, the FAANG stocks have continued to show their dominance. All 4 of these US tech giants are right now, at, or near, all-time highs. Facebook is up more than 47% over the past 12 months. Apple, up 61%. Amazon is up 32.3% and Alphabet (C Class), 65%. Long story short, the FAANGs still have claws.

But the same can’t be said of the WAAAXers.

WAAAX off

After reaching an all-time high of just over $38 in 2019, WiseTech has, as of today’s pricing, gone backwards to the tune of 32% from that all-time high from close to 2 years ago. Altium has lost 42% from its high watermark that it hit just before the pandemic struck. Appen is a real clanger, down more than 72% since August last year on today’s level. Afterpay was doing ok for a while there, topping out at $160 a share back in February. But again, on today’s prices, it has given up more than 45% from those levels. And Xero has been dealt a similar fate, falling around 30% from its all-time high of $158 in December last year to today.

So what’s changed? Well, some of the WAAAXers have run into problems scaling their business models in a post-COVID world. This is especially true of WiseTech, Altium and Appen. In Appen’s case, the shares were especially hard hit earlier this month when the company’s CEO warned that the pandemic had led to changes in its customers’ behaviour, and not in a way that benefits the company.

Foolish takeaway

But ultimately, perhaps the story of the WAAAX shares so far just highlight how a narrative can get ahead of fundamental business performance. Just because a company grows at a breakneck speed for a few years doesn’t mean it will do so until Judgement Day.

But many of the WAAAX shares attracted prices over the past few years that arguably seemed to assume they would. When the market corrects this over-optimism, it can be devastating for existing shareholders. Remember, the great investor Benjamin Graham once said that in the short term, the market is a voting machine, and in the long term, a weighing machine. This might be exactly what we’ve seen play out with the WAAAX shares.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sebastian Bowen owns shares of Alphabet (A shares) and Facebook. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Appen Ltd and Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Altium and recommends the following options: long January 2022 $1920 calls on Amazon, short March 2023 $130 calls on Apple, short January 2022 $1940 calls on Amazon, and long March 2023 $120 calls on Apple. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and WiseTech Global. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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