Chris, what multiple would you pay for Alteryx in isolation from everything else?
Then compare it to where you expect the company multiple to actually be 12 to 24 months from now based on its current enterprise value.
Actually, I recently did this for Alteryx since it’s ~25% of my portfolio. Assuming their recent FCF target/guidance of 30-35% in 4 years and 50% CAGR on TTM revenue for 4 years, I would think that the company would be worth a 40-50x multiple on FCF at that time. So 4 years from now, I think AYX should be worth about $23B in the middle of 2023 with about 80M shares outstanding. Therefore, the share price would be about $290 which would give you a CAGR of 27% from here. I’m not worried about AYX long term.
Do the same for Zscaler.
Doing this for ZS is a little more difficult and I haven’t done the same exercise because they are not as far along on their path to profitability (i.e. more assumptions to make) as AYX is. I like ZS and have been adding. TWLO seems a bit more fuzzy (for various reasons) and I have been reducing it.
There is no need to be so philosophical nor hypothetical. We have real businesses, we have real numbers.
Yes, I agree to focus on the numbers and I do believe that we have selected a group of special companies. But when the stock prices run up so fast (as they have)…much, much faster than their growth rates, doesn’t it make sense to question whether this is sustainable? I’ve been watching the price movements along with the movements of other companies in other sectors. To me it doesn’t at all seem like we saw at the end of 2018 (everything dropped then). To me it doesn’t at all seem like what we saw in 2008/2009 (everything dropped then). Now we have a sector specific drop.
Like with all businesses if there business flips so do they. Of course we invest in what we don’t think will flop.
So let me know. The Answer objectively answers your question. Interpret it how you will.
This time is different? Maybe, but so was 2009. Yikes! Except as an example ISRG AND VRTX AND CRM and PANW Anne what not. World ended, panic ensued, dark ages…errr, wait did that happen?
What feels different for me is that the selloff is sector specific AFTER a huge run up in the sector. I agree that the businesses are doing great. I’m fairly confident that we will be near the all-time highs (assuming no massive market meltdown) for the IT software stocks sometime around the first quarter of 2021. This assumes that the current EV/Sales multiples will hold (i.e. not rise or fall much).
Chris
PS: Yes, I’ve been philosophical about this because I had been talking about lightening in the period between May and July…did a little but capital gains taxes kept be from selling too much.