Why Sea Limited Stock Slumped 13% This Week

Why Sea Limited Stock Slumped 13% This Week

One of its biggest shareholders sold a large chunk of stock, driving the price lower.

What happened

Shares of Sea Limited (NYSE:SE) plunged 13.9% this week, according to data provided by S&P Global Market Intelligence. The Southeast Asian technology giant saw selling pressure after Tencent Holdings (OTC:TCEHY), Sea's second-largest shareholder, announced it was selling $3 billion of its stake in the business.

So what

On Tuesday of this week, Chinese internet giant Tencent announced it was selling more than $3 billion of its investment in Sea Limited. After the announcement, Sea Limited shares fell more than 10% for the day, accounting for the majority of the stock's losses this week. The rest of the week's loss could be accounted for with the growth factor's almost 3% underperformance vs. the S&P 500 this week or possibly just standard market volatility.

After the sale, Tencent's ownership in Sea Limited will fall from approximately 21.3% down to 18.7%. So while the dollar amount of the sale may seem large and definitely had an impact on the stock price in the short term, Tencent still has a huge stake in Sea Limited worth over $20 billion as of this writing.

Now what

With this recent sell-off, Sea Limited shares are now down almost 40% in the last three months, marking some of the worst performance in the stock's history as a public company. The stock now trades at a price-to-sales (P/S) ratio of 12, the lowest that multiple has been in over a year.

Sea Limited is a gaming, e-commerce, and payments business that started in Southeast Asia but has since expanded around the world. Its Garena gaming subsidiary operates one of the world's most popular mobile games, Free Fire, which brings in tons of profits and cash flow for the company. With this cash flow, Sea Limited has reinvested into its e-commerce business -- Shopee -- and its payments subsidiary -- Sea Money. This three-pronged strategy has helped the company rapidly grow its revenue from less than $1 billion a few years ago to $8.3 billion over the past 12 months.

With the valuation coming down after this recent sell-off, now could be a good time to buy shares in Sea Limited stock if you are bullish on its long-term prospects.