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Why Skillz Stock Slumped, Then Recovered Today

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© Provided by The Motley Fool Why Skillz Stock Slumped, Then Recovered Today

What happened

Skillz (NYSE: SKLZ) slumped on Thursday, following many high-growth and small-cap stocks into negative territory. Shares had fallen as much as 7.8%, but by the close of trading, shares of the mobile-gaming platform had recovered some of the losses, down just 3.3%. There was no apparent catalyst for the move.

So what

There didn’t appear to be any company-specific news — no press releases, no filings with the Securities and Exchange Commission (SEC), not even any analyst reports we could find to explain the slump. Much of broader market was in the red on Thursday, as investors digested another day of testimony on Capitol Hill by Federal Reserve Chair Jerome Powell.

© Getty Images A person looking at stock charts on their computer.

Recent U.S. economic data suggested a sharp spike in the potential for inflation, though Powell insisted it was far too soon to raise the alarm. While Powell said that inflation “has been higher than we’ve expected and a little bit more persistent,” he cited pandemic-related supply constraints and bottlenecks as a major contributing factor. He also expects these inflationary pressures to ease later in the year.

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Fears regarding inflation weighed on many stocks today, and Skillz is already prone to bigger moves than the broader market.

Now what

Nothing about the company’s growth story changed today. Skillz is a high-growth stock and its market cap of just $6 billion helps fuel its ongoing volatility. It’s also a high-risk, high-reward proposition, with a lofty sticker price to match. Skillz is currently selling at 16 times forward sales, when an attractive price-to-sales ratio is generally between 1 and 2.

Moves like what we saw today will be commonplace for Skillz stock, so long-term investors should buckle up and prepare for a bumpy ride.

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Danny Vena has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Skillz Inc. The Motley Fool has a disclosure policy.

 

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