First I want to say my point for the original post is that the PS ratio goes down as the company continues to grow. This is how fundamentals drive the share price up over the long term after all. All of the math here is just proving that intrinsic point.
Once I show how far down the PS will go through continuing fundamental growth, I then simply calculate what the price would be if the PS did not change and I get a future price, based on today’s valuation, that includes the growth in revenue from tomorrow (the rest of the year). Finally, I can play with the inputs to get a conservative view of this (the company guidance) versus a reasonable but slightly aggressive guess at where they could be.
This is the same exercise I used to do using PE ratios with Chipotle, for example, to decide if it was “cheap” or “expensive” to do a little medium-term trading on top of my “core position”. Not because the raw metric number was big or small compared to an industry or some other external comparison, but by taking the number relative to its own past, factoring in changes at the company, like this pandemic has changed Zoom, to arrive at something that helps me approach a decision to take action or not.
The reason I am posting numbers again is that pretty much everywhere, except the actual company reports, show the wrong share count! It is actually 295,184,958. So using the same revenue numbers and equations, here is a reworked version.
This time I’ll be reducing to a PS of 55, which looks like where it was roughly a year ago. It went down for a bit towards the end of last year but I wouldn’t expect a full reversion to that low now that Zoom is so well known. This new number is a little less arbitrary than my last guesstimate.
Scenario 1: TTM Today Versus End of FY Guidance
TTM PS Today
Rev TTM: 807,586,000.00
PS: 88.3
TTM PS at end of FY’21 if share price stays the same
Rev FY21: 1,828,167,000.00
PS: 39.0
Share price at end of FY’21 if PS stays the same: $545 (+126%)
Share price at end of FY’21 if PS is 55: $340 (+41%)
Scenario 2: TTM Today Versus End of FY Projection Guess
TTM PS Today
Rev TTM: 807,586,000.00
PS: 88.3
TTM PS at end of FY’21 if share price stays the same
Rev FY21: 2,128,167,000.00
PS: 33.5
Share price at end of FY’21 if PS stays the same: $635 (+163%)
Share price at end of FY’21 if PS is 55: $395 (+64%)
Based on this logic we have a share price of $340-$635 or 64%-163% higher than today, by the end of the year.
Check my math.
Thoughts?