Welcome to the board, HermioneW! Very well articulated question!
Is management sand bagging or is it they foresee difficulty in later months? I see similar thing with AYX.
I think that’s exactly what they’re doing. Many companies do this. They usually come up with an excuse about “lack of visibility” more than a quarter or two out. But they know growth won’t slow that much. But perhaps it will come down from 59% to 50%. Instead of saying “growth slowed” they get to say “we beat our 35% guidance by a mile!”
I still could not get over negative net income, even on adjusted basis. 1) is it all right as long as the net loss is narrowing? or net loss % of rev is narrowing
I think those are questions only you can answer. But as you read through board posts from the last year or so, notice how many companies with recurring (SaaS) revenue managed to move from losses to profitability.
2) How do you calculate PE when earnings are negative? Now if PE is not useful, what yardstick do we use to get a gauge when looking at growth rate? For example, if PE is 25 and growth rate is 45% then we know there is opportunity there. Now what to use if no PE?
Personally I almost completely ignore PE for companies with losses. I look at the Gross Profit vs Operating Expenses. I want to see Gross Profit increasing faster than Operating Expenses. To me that means they’re not spending too much to grow.
3) Cash flow. I see you guys sometimes use cash flow from Op, sometimes Free Cash Flow. Since majority of the stocks you are in are hi tech/cloud/data type, I assume the capex is minimal so you use CFFO and FCF interchangeably? Does it concern you that companies still need to pump cash into investment/financing that they end up negative on net cash flow?
This may be a circuitous answer, but the best lesson here is to take all metrics in context. Example: Shopify’s CFFO was only 8M in 2017 (down from 14M in 2016!!!). Well, a big reason for this is that they’re starting to offer cash advances to their users, and this creates a receivable (38M in 2017) that puts a damper on cash flow…FOR NOW. So instead of 46M in CFFO, Shopify had 8M. They also had 20M in CapEx, so they were FCF negative. But really, without the receivable I mentioned above, FCF would have been 26M. And of course, the broader context is that even 26M is nothing compared to how much cash they will eventually be able to throw off. My point is simply this: CFFO or FCF, EPS, etc…none of them mean anything out of context. Judging Shopify by their cash flow, to use my example, will not work.
Hope this helps. Feel free to ask more of these very well-constructed questions.
Bear