2 Growth Stocks to Avoid Post-Pandemic

The U.S. economy is on a gradual path to recovery, and that has been bullish for many stocks in 2021. As the benchmark S&P 500 index continues powering to new highs — already up over 20% year to date — you might be tempted to chase high-growth stocks that appear to have been easy money up until this point. 

But it’s important to remember that past performance is not a reliable indicator of future results. That’s especially true given the once-in-a-century pandemic investors just navigated. While some stocks fared well in the stay-at-home economy, that performance might not carry through as we return to normal life.

There’s still some good value in this market, but here are two popular growth stocks to avoid as they show signs of slowing in the post-pandemic world. 

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1. DoorDash decelerates

Food delivery felt like an obvious winner during COVID-19 lockdowns, and DoorDash (NYSE:DASH) had the astronomical growth to prove it. During the third quarter of 2020, the company generated 268% year-over-year revenue growth, but it was always going to be difficult to maintain that pace. 

In fact, that quarter turned out to be the peak.

Data source: Company filings. YOY = year over year.

Revenue growth has steadily declined since then, falling below triple digits in the second quarter. While 83% is still strong, DoorDash has warned investors to expect a seasonal slowdown heading into the end of the year, so there’s little hope of returning to 2020 growth levels in the near future.

Analysts actually expect full-year revenue growth to slow all the way down to just 19% in 2022. Though DoorDash has plenty of time to improve this trend before then, it highlights the contrast between what the company could achieve in a stay-at-home economy versus the normal conditions we’re returning to.

But the larger concern is DoorDash’s lack of profits. For all the spectacular performance of 2020, the company failed to bring it to the bottom line as it reported a loss of $7.39 per share for the year. The red ink has persisted in the first six half of 2021 with losses of $0.64 per share. While the company is closer to breaking even, slowing revenue growth may hinder its efforts to generate profits long term.

DoorDash also faces competitive headwinds. A second-quarter survey by Bloomberg revealed DoorDash, Uber Eats, and GrubHub shared up to 40% of their customers. Food delivery is a business with few barriers to entry, and it could mean DoorDash’s hopes for prolonged profitability will be dashed by endless spending on customer acquisition.

With the stock trading at almost 14 times estimated 2021 sales, no earnings on the horizon, and growth quickly decelerating, investors might want to be careful jumping in at current levels.