Is It Time to Buy September’s Worst-Performing Nasdaq Stocks?

September has historically been the worst month of the year for the stock market with S&P 500 decreasing on average throughout the month.

However, in September this year it bucked this trend, with all three indices posting positive gains. The Dow Jones Industrial Average and the S&P 500 even hit all-time highs last month.

Data by YCharts.

As you can see, the Nasdaq Composite was the best performing major index, rising toward the end of the month after the Federal Reserve said it would cut interest rates by 50 basis points.

Looking at underperforming stocks can be a way to find future winners, especially if they have only sold off due to short-term pressures. On that note, let’s take a look at the worst performing stocks in the Nasdaq-100 last month to see if any of the index’s biggest companies are worth buying.

Image source: Getty Images.

1. Dollar Tree (down 16.8%)

The dollar tree (DLTR 2.63%) was the worst performer in the Nasdaq-100 for September, and there’s a simple reason why. Shares tumbled following its second-quarter earnings report, as it sorely missed bottom-line estimates, in line with its peers. general dollarwhich similarly declined on earnings.

Dollar Tree, which also owns Family Dollar, reported comparable sales growth of 0.7 percent in the quarter, but missed profit estimates and cut its earnings per share guidance for the year.

Rising legal expenses hurt its bottom line, although core operating performance was also lackluster as adjusted operating income fell 24.2% year-over-year to $218.1 million.

Dollar Tree cut its full-year adjusted earnings per share (EPS) outlook from $6.50 to $7.00 to a range of $5.20 to $5.60. Based on the new guidance, the stock now trades at a forward price-to-earnings (P/E) ratio of 13. Dollar Tree’s problems look more temporary than permanent. The company has announced a strategic review of its struggling Family Dollar segment, and a possible sale or spinoff of the brand could be just what Dollar Tree needs to get back on track. In these circumstances, bargain hunters should consider the profit of the sale and its attractive valuation.

2. Zscaler (down 14.5%)

Zscaler (ZS 2.54%)the cloud-based cybersecurity software company also fell last month following a miss in its earnings report.

While the company’s fourth-quarter fiscal 2024 revenue beat estimates, guidance for fiscal 2025 was disappointing and well below analysts’ expectations due to slower billings growth expected in the first half of the year.

The question for investors is whether Zscaler can beat those expectations, as the company has a history of giving conservative guidance and then beating it.

Revenue in the last quarter was up 30% year over year, showing that the growth rate remains solid. Based on Zscaler’s forecast for fiscal 2025, the stock is trading at a forward price-to-sales ratio of 10, a high but not unusual valuation for a stock growing at this pace.

The cybersecurity software market is expected to continue to grow, making the drop in Zscaler an intriguing opportunity. Looking beyond the weak near-term guidance, it’s easy to see that the stock will rebound over the long term if the company can sustain its growth.

3. GlobalFoundries (down 13.8%)

Finally, chip stocks rose, but GlobalFoundries (GFS 1.80%)a contract semiconductor manufacturer, fell last month.

Unlike the two companies above, there was no particular news that caused GlobalFoundries to go down. Conversely, a broader selloff in chip stocks hurt its performance as investors responded to news that Nvidia was investigated by the Department of Justice on antitrust grounds.

As a manufacturer, GlobalFoundries’ fortunes are tied to the broader strength of the semiconductor industry, so it’s no surprise to see it pull back in response to industry-wide concerns about an economic downturn and falling demand.

Revenue fell in the company’s most recent quarter, down 12 percent year-over-year, a sign of how it is struggling to capitalize on growth happening elsewhere in the chip sector. Given that performance, investors seem better off staying on the sidelines with GlobalFoundries for now.