Saul,
I did note the adds of SQ and MDB and dumping GH.
Honestly, first thing I thought was “how come he didn’t add more to TTD?” TTD always seems to be the stock that people doubt, and then the ER hits and they love it again, and then over the next 3 months doubt creeps back in. Hopefully their ER later this month is another good one.
On EV/S, I did a “math” experiment on NPI, looking at a strong high-growth company example of Splunk. I then compared it to AYX and TTD. Basically the idea was, is it realistic that a company will keep a 23 P/S ratio for 6 more years, in the case of AYX. Since Splunk is set to announce full year 2018 calendar revenues of $1.7b, they are pretty mature and have had success that AYX and TTD should aspire to replicate.
If, and a messy IF I realize, Splunk has a fair P/S at 12, and if AYX and TTD follow similar revenue growth numbers and eventually reach $1.7b and are awarded at that time a trailing P/S of 12 (like Splunk) what does that stock growth look like?
Using market caps of today, and extrapolating them out to 19b (same as Splunk) and gradually tapering off their P/S to finish at 12, I found:
If we started today, with $25,000 in AYX, it would grow to $115,000 in 6 years time, or 28.96% CAGR.
If we started today, with $25,000 in TTD, it would grow to $75,000 in 4 years time, or 31.61% CAGR.
In order for AYX to go from 23 trailing P/S to 12, over 6 years, let’s look at it gradually:
start of:
2019 23, on 200m, mkt cap 4.1b
2020 21, on 300m, mkt cap 6.3b
2021 19, on 450m, mkt cap 9.5b
2022 17, on 675m, mkt cap 11.4b
2023 15, on 950m, mkt cap 14.2b
2024 13, on 1.2b, mkt cap 15.6b
2025 12, on 1.6b, mkt cap 19.2b
Do we really think it will be so nice and gradual. Or will it plummet, say next year. All it will take is for the stock to go sideways for most of one year for a huge drop in P/S.
2019 23, on 200m, mkt cap 4.1b
2020 18, on 300m, mkt cap 5.6b, about a 36% stock price gain (lower than the growth rate, duh.)
2021 16, on 450m, mkt cap 7.2b
2022 14, on 675m, mkt cap 9.4b
2023 13, on 950m, mkt cap 12.3b
2024 13, on 1.2b, mkt cap 15.6b
2025 12, on 1.6b, mkt cap 19.2b
I guess the point of all the above is to say that valuation does matter in the sense that AYX or TWLO or TTD, at the start of 2018, were able to grow their stock price appreciation well-above their revenue growth rate, due to multiple expansion. At some point, the market won’t justify that continuing.
So at the start of 2019, where we find ourselves today with AYX, TWLO, and TTD (just as examples) can we expect the same kind of share performance this year as we saw in 2019? Unlikely, unless revenue growth dramatically accelerates past the already market-leading 50%+y/y growth they already have.
So I would contend, that over next 4-6 years, from this current level, AYX, TWLO, and TTD would almost likely have to see their share price appreciation match or go lower than their revenue growth rate, as companies typically get lower P/S ratios as they mature.
SHOP was an outlier here, as they had that unique 70%+ y/y growth for an extended period.
This isn’t to say AYX or TTD or TWLO won’t continue to be market-beating investments…rather just that I don’t think they will be as otherworldly as they were in 2018.
Dreamer
about the new, to simply those emotionally attached against or for something else.