Why Weibo Corporation Shares Tumbled Today

By Markets Fool.com

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What happened

Shares ofWeibo Corporation(NASDAQ: WB) were sliding today on a widespread sell-off in Chinese tech stocks. As of 3:04 p.m. EST, the stock was down 9.8%.

So what

On a day when theNasdaqwas off 1.4%, Chinese tech stocks were getting hit especially hard.Alibabawas down 4% and several other Chinese tech stocks were off sharply, too, including the owner of China's Twitter-like service, Weibo.

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Prior to today's sell-off, Weibo shares had nearly tripled this year, so today's dip could be seen as both a correction and profit-taking. China has also been targeted by president-elect Donald Trump several times, though a potential trade war would be unlikely to have an effect on a social-networking service like Weibo.

Now what

While there was no clear cause for either the Nasdaq's sell-off or the one in Chinese stocks, a comparison between Weibo and Twitter offers one explanation. Before today's slide, Weibo had a market cap of $11 billion, nearly as much as Twitter, and like its American counterpart, Weibo has struggled to generate a significant profit, with a P/E in triple digits. While the company has consistently beaten earnings estimates, its valuation may have become unmoored from reality -- meaning the recent pullback is warranted.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Weibo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.