Nothing’s stopping former ‘market darlings’ from falling, warns Jim Cramer

On Friday, CNBC’s Jim Cramer warned investors that shares of some new companies that have had tremendous success during the pandemic are continuing to slide, and this may just be the beginning.

“When your stock doesn’t have any dividend support and doesn’t have a reasonable valuation relative to earnings – even assuming it has earnings – there’s no floor in this market. If you ask the question, how low can he go? The answer is almost always lower,” the “Mad Money” host said.

“Never confuse a big dip with a dip. They are not synonymous,” he added.

Stocks fell on Friday after May’s consumer price index showed higher-than-expected inflation numbers.

Among the stocks that fell today were Stitch Fix and DocuSign, which Cramer pointed to as two names illustrating his caution against investing in former high flyers.

Shares of Stitch Fix, which have boomed during the pandemic as consumers have turned to online shopping, fell 18% on Friday, after the company announced layoffs on Thursday and said it will s ‘expects a decline in revenue in the fourth quarter.

The company hit a fresh 52-week low of $6.18 earlier in the day, down from its 52-week high of $64.52 hit about a year earlier.

DocuSign, another winner in the pandemic, saw its stock tumble 24% after it missed Wall Street’s revenue and profit expectations in its latest quarter.

The company also hit a new 52-week low earlier today at $64.30, well below its 52-week high of $314.76 hit last August.

“These newer stocks, the ones that were invented in the last three, four, five years, they were incredibly expensive before the peak…maybe even before they went public, so as their business grows deteriorates, they can fall very, very far before they find any support,” Cramer said.

He added that despite DocuSign’s steep drop, he still doesn’t think the stock is cheap enough to be a buy. As for Stitch Fix, the stock is untouchable until the company’s core business stabilizes, he said.

“We don’t care where these old market darlings have been. … We only care where they go,” he added.

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