The damage to disruptive stocks – or emerging technologies, or growth at all costs – is now well known.

carvana

(ticker: CVNA), for example, was supposed to disrupt the way people buy cars, but its stock has fallen 79% in the past 12 months, while its losses continue to mount.

Robinhood Markets

(HOOD) was supposed to change the way people invest — and it may be — but its stock has fallen 73% since closing at $38 after its first day of trading on July 29.

Teladoc Health

(TDOC), which aims to replace a doctor’s visit with a video screen, has fallen 75% in the past 12 months. It often feels like the more disruptive a company is supposed to be, the more its stock has fallen.

Part of the problem is that many companies labeled as disruptive have simply benefited from Covid-19 lockdowns. Since

Interactive Platoon

(PTON) – down 80% from last year – at

Focus on video communications

(ZM)—from 66%—to

DocuSign

(DOCU) – down 59% – these were innovative companies with products that people were forced to use because of the coronavirus; they weren’t really disruptive. “During Covid, a lot of their products were forced on us because we were working in isolation,” says Peter Andersen of Andersen Capital Management.

Still, with so many potential disruptors sitting on massive losses, bargains must abound, except they don’t. In a LinkedIn post last week, Bridgewater founder Ray Dalio noted that “emerging tech stocks no longer appear to be in a bubble, but they also don’t appear to have tipped significantly to the opposite extreme, either. so it’s not necessarily true that now is a good time to buy them. Bill Gurley, general partner at venture capital firm Benchmark, went further, taking to Twitter and warning that “previous all-time highs are completely irrelevant. It’s not “cheap” because it’s 70% off.”

Wall Street is turning to this notion as it wrestles with how to value former high-flying growth stocks. Kirk Materne, who covers software stocks for Evercore ISI, notes that investors have pushed the amount they pay for revenue growth relative to profit margins by two to three times what they were before. Covid does not strike. With such a drop in the group, this metric has actually fallen below pre-Covid levels, but investors shouldn’t expect stocks to rebound where they were. Growth “will always be ‘true north’ for software investors,” writes Materne. But “demonstrating stable operating leverage could be a bigger factor in terms of outperformance over the next two years.”

“Operating leverage” is the term used to describe the amount of increased profit a company gets as revenue increases, and “disrupted” stocks seem to have it in spades. This is because they have high fixed costs that spread further as sales increase, making them more profitable. This is one of the reasons why so many disturbed people have held up better than their future disturbers.

AutoNation

(AN), an alleged victim of Carvana, has gained 16% in the past 12 months, as analysts expect profits to rise 25% in 2022.

Charles Schwab
,

one of Robinhood’s targets, fell just 2.7% over the same period.

Health HCA
,

which runs Teladoc hospitals will help you avoid, increased by 7%. the

S&P500
fell by 1.3% over the same period.

For investors, that means looking for growing companies that resemble their old-school competitors. For example, Wedbush analyst Dan Ives recently warned that working from home “poster kids such as

netflix

(NFLX), Zoom, DocuSign, etc. will continue to see multiples compress as results ease from pandemic highs. Instead, it directs investors to cybersecurity stocks such as

Palo Alto Networks

(PANW),

Z-scale

(ZS),

Fortinet

(FTNT), and

CyberArk Software

(CYBR), all but the latter expected to be profitable in the coming year. His conclusion: “A key overlooked theme during tech earnings season has been the strong trend in cybersecurity demand,” he writes.

Even some former high-flying pilots can be worth a look. Andersen of Andersen Capital highlights

Commercial counter

(TTD), which offers targeted advertising, as a real disruptor punished much more than he deserves. Its stock has fallen 40% this year, but Andersen likes the company for its exposure to smart TV advertising, which he says will drive stocks higher. “He was thrown with all the other babies into the bathwater,” Andersen says.

However, it may take some time for these names to start working again. Chris Harvey, U.S. equity strategist at Wells Fargo Securities, notes that with the focus still on the Federal Reserve and inflation, high-priced growth stocks are unlikely to work until inflation expectations kick in. not to lower. He recommends looking at the 10-year Treasury break-even point — the amount of inflation embedded in a 10-year Treasury inflation-protected security, or TIPS — to know when it’s safe to re-engage with those stocks. . If they fall into a range of 2.5% to 2.75% percentage points from the current 2.87%, it may be time for these battered stocks to rally. “If break-evens are falling, that suggests the Fed has been able to slow the economy,” Harvey says. “In this environment, growth would come back into favor.”

Enjoy the wait.

Write to Ben Levisohn at Ben.Levisohn@barrons.com