By Spencer Jakab

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Where are they now?

Nearly every American stock rebounded after the bottom of the Covid-19 bear market five years ago -- a rally that made picking winners like shooting fish in a barrel. A tsunami of government stimulus and a realization that the world wasn't ending were responsible for much of that.

But some companies' shares did especially well precisely because of the pandemic. While that didn't last, their lessons about Wall Street's hype machine should.

Breakthroughs like AI, quantum computers and 3-D printing induce a fear of missing out, sending too many stocks rocketing higher. They give pundits something to talk about, brokers the next thing to sell and asset managers an excuse to launch new funds.

Covid beneficiaries were like those thematic stocks on steroids, jumping at the same time in a way that looks silly with the benefit of hindsight. Investors treated their sales gains in 2020 and 2021 as if they would keep going. Even if that were possible, competitors pounced on the same opportunities. Companies that sold in-demand physical goods during the emergency even cannibalized their own future demand.

Take Wayfair. As people found themselves spending far more time at home with enforced savings and stimulus checks, the online furniture retailer experienced more demand than it could handle. A year after the Covid bottom, its stock had surged 1,367%. But Wayfair's sales per share in 2024 were lower than during the year before the pandemic.

Exercise equipment maker Peloton's shares jumped 758% as demand for home-exercise equipment exploded, lifting its market value to nearly $50 billion. They have erased all of those gains, dropping 96% from their peak as social distancing has become a thing of the past and other fitness brands have launched online offerings. Peloton's new equipment now also has to compete with plenty of its own lightly used machines for sale online. It has never earned an annual profit, and analysts polled by FactSet see sales falling for a fourth consecutive fiscal year.

Online pet-goods retailer Chewy's rise and fall were slightly less extreme, and the boost to its business less fleeting too. After all, most of those pets adopted during the pandemic are still alive. But Chewy's flatlining sales make its trailing price-to-earnings ratio of more than 4,000 times back in 2021 look insane in retrospect.

Zoom became a verb and its stock surged more than 700%, giving it a market value of more than $160 billion. Yet its multiple of 3,000 times trailing earnings implied it had some sort of permanent monopoly on videoconferencing -- a service others offer for free.

Some other companies benefited beyond a temporary sales surge. Online crafts marketplace Etsy was one of the few sources of face masks for a while. After demand for them plummeted, it still had gained name recognition and new customers. Likewise, software company Docusign's benefit from social distancing and a mortgage boom are over, but the public got comfortable with electronic signatures. Sales are higher for both companies -- just not that much higher. Etsy and Docusign are down by 85% and 71%, respectively, from their pandemic peaks.

Sometimes a company's fortunes really do change overnight. Investors lucky enough to own their shares still need to go back to the basics of what gives them value -- decades of future cash flows. If it is hard to argue that the price gain reflects a business opportunity that is big and sustainable enough, then the next step is clear: Take the money and run before others figure it out too.

Write to Spencer Jakab at Spencer.Jakab@wsj.com

(END) Dow Jones Newswires

March 25, 2025 05:30 ET (09:30 GMT)

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