A few of these stocks might be large winners, but most will never regain their highs.
How do you know? And if you know, tell us which ones. That would be most helpful, specially if you explain why each one of them will be a bust going forward.
Saying but most will never regain their highs with no specifics backing it is worthless because it is not actionable.
Denny Schlesinger
In any case we are buying stocks not companies and stock prices of all of these companies will likely fall in a recession. They are not “safe” .
It depends on the definition of safe. If safe means “an escalator to financial heaven” there are no safe stocks, fast growers will fall by 50% on a fairly regular basis and that does not make them unsafe if they bounce back. My experience is that “unsafe stocks” are the ones that go bankrupt – total loss. A stock that goes sideways is no worse than cash.
cloud software is at the beginning of a rapid growth cycle compared to its counterparts in tech that I do agree with. But it’s hard at this early stage to be sure of the ultimate winners
There are two approaches, Geoffrey Moore recommend “buy the basket and sell the losers.” I think the better alternative is for the company to establish itself before buying the stock, around the time of the curve in the hockey stick.
One important caveat, SaaS is a business model, not an industrial segment. Lumping all SaaS together is a mistake, do it segment by segment, security, database, communications, AI, etc.
Denny Schlesinger
Your post 59735 may have been the single most important post I’ve read since reading Saul’s knowledge base and in my seriously humble opinion may be a reason if not the reason for the recent recalibration to the value of the Saas business model.
Thank you but I don’t follow your reasoning. You seem to be implying that people read the linked article and based on it downgraded all SaaS stocks. What did I miss?
Denny Schlesinger
A stock that goes sideways is no worse than cash. I would be quite surprised if the stocks most of us own will go sideways in the next Bear. And even if they do go mostly sideways, there is a lot of volatility. Will any of Saul’s stocks go bankrupt during the next Bear? TBD…
‘Thank you but I don’t follow your reasoning. You seem to be implying that people read the linked article and based on it downgraded all SaaS stocks. What did I miss?’
Denny Schlesinger
Yes, absolutely read the article you posted.
And to your point, the author of the article,David Skok, is #2 on Forbes List of 100 most influential websites for Entrepreneurs. And I found his argument of taking the view of future cash flows at a discounted rate quit easy to understand. And if people are ‘just now catching on to he power of the Saas business model’ as many have said, his argument throws a big wrench into the mix. Going from infinite value to zero in 10 years time, if this view hasn’t been considered or the Saas business model was taken too simplistically, could be enough to ‘recalibrate’ expectations. did I just put quotes around what I said? So, between the time of ‘just catching on’ and the publication of this highly read article a lot of money has gone into Saas company stock and now a lot has come out and I haven’t been able to find much of any reason for it.
Just an idea, like the Berlin Wall.
Jason
Sorry,
When I haven’t found much of any reason for it. I should have said, ‘I haven’t found much of any reason for the money to be coming out of these Saas companies’ other than what the article you posted said about discounting future cash flow and that is a stretch I admit.
Thanks
A few of these stocks might be large winners, but most will never regain their highs.
How do you know? And if you know, tell us which ones. That would be most helpful, specially if you explain why each one of them will be a bust going forward. Saying “but most will never regain their highs” with no specifics backing it is worthless because it is not actionable.
I have to agree with Denny’s comments on this. That was one of the silliest comments I’ve seen recently. And stated with such authority, no less. But, on no basis and with no evidence at all !!!
Does the writer really believe that “most” of a group of companies growing revenue at 50% to 98% annually will “NEVER” come back from a 20% or 30% decline??? Can he really believe that? Is he out of his mind?
These companies weren’t declining because of company specific business problems, but they were all declining simultaneously because of sector rotation. And so we are now having people show up speculating about whether these companies with no net debt and 90+% of their rapidly growing revenue locked in and recurring, and with 70% to 90% gross margins will go bankrupt, bankrupt(!) of all things??? What is the basis for that ??? That’s so unlikely as to border on the impossible. But when the market goes down, these people and these ideas always show up, so I shouldn’t be surprised.
And finally, A few of these stocks might be large winners. Well, all you need is “a few”.
So think about whether the scenario being presented makes any sense at all before you get scared by these absurd speculations.
Saul
Discounted Cash Flows and Time Value of Money are very old concepts. That article itself is over 2 years old. The selloff is not limited to SaaS. Many growth stocks, regardless of industry, have been hit. Basically anything that has gone up a lot this year has been hit.
The only way that article linked could be relevant is if long term bond yields go up causing Net Present Value of future cash flows to be worth less. Long term bond yields did rise recently, but all it did on the other hand was abate some of the concern over the inverted yield curve.
Let’s chalk this up to the market is selling off growth stocks, for some unknown reason. And it certainly isn’t from that article from 2 years ago. There is a “flock to value” after a very wide pendulum swing to the growth side over the past couple years. This pendulum swinging back the other was will occur over an unknown period of time. Both growth and value investing work, but this board is focused solely on growth investing. And It’s probably not a good idea to go around chasing what’s hot for the moment. Eventually, growth will rebound, and when it does, the growth stocks followed here (or whatever is being followed at the time) will come back with a vengeance.
There is nothing special about what is happening with SaaS stocks. Take ENPH for example, which makes DC-AC inverters. Roku makes operating systems for Smart TVs. Neither of these have anything to do with SaaS, let alone enterprise software, yet both of them have been hit over the last couple weeks.
Here is an article that explains what is going on: https://seekingalpha.com/article/4291503-week-momentum-massa…
Note, it does not explain WHY it is happening nor WHEN it will stop happening. Frankly I don’t even think either of those can be explained with any certainty, other than the WHY is herd behavior, in which case, the WHEN is unknown.
I noticed this when this correction started happening. For the first time basically since the 2009 correction, growth stocks, as a whole, finally underperformed to the downside compared to the rest of the market.
I realize this is OT but I see a LOT of people talking about this correction, and I don’t blame them, I believe there are a lot of people who started investing recently and have been following this board buying a bunch of SaaS stocks, and up to this time, SaaS meant a safe haven in times of the minor corrections we’ve had. To discuss this in further detail is OT, of course, and I don’t have the answers anyways. But what I can say is the fall is not limited to SaaS, but high growth stocks in general. The last part I think is relevant. I’m convinced SaaS is not some monolithic industry like steel mills or railroad manufacturing. Steel prices or steel demand goes down, all steel mills get hit. Railroads get overbuilt, all train and car manufacturers get hit. But SaaS? It would have to mean databases, web security, videoconferencing, procurement, data analytics, and so many other industries (the only real thing they have in common is they are B2B) would follow the same demand cycle. I do not think that sounds likely. In addition it does not explain the ENPHs and ROKUs of the world getting hit at the same time.
Let’s call this what it is, a bump in the road for growth investors.
Saul,
I could not agree more; as has often been repeated on these boards…
“Stocks go down FASTER than they go up, BUT they go up MORE than they go down.”
Additionally, I recently read:
“It has been a tough week for growth companies. After soaring to stratospheric heights over the past several years, the shares of many rapid-growth companies have suddenly nose-dived. These sharp share-price drops can be unnerving, but experienced investors recognize them as simply the price of admission to the stock market’s long-term wealth creation process.”
The “price of admission” indeed. I have always agreed with those that have argued that one of the most critically defining characteristics of successful investors is TEMPERAMENT.
Thanks for the perspective, Saul. For the past few days I went back to some of your writings in the past on this board, and I found a post about reflection at the beginning of 2017, where you reflected, among other things, the second half of 2015 that I think unfolded somewhat similar to this past month.
You wrote that by July of 2015, you were up by more than 50% for the year, but ended the year up 16% or so (which still beat the indexes that year). Over that period, your stocks did horribly while the major indexes did nothing much — similar to now.
What happened afterwards: you had a flat year in 2016, but then rocketed to stratosphere in 2017 and 2018.
I brought up this history because I’m curious with 3 questions for either you or the other veterans on this board:
Do you guys recall other times something similar happened (Saul stocks tanked, indexes did OK)?
2015 episode took many months to get the loss recouped (and then much more). Did these other episodes take similarly long time (late 2018 was quite different: market and Saul stocks both tanked, and in the end the recovery was quick and furious)?
Do you think the ultimate takeoff in 2017 and 2018 following the 2015 underperformance the result of sticking to the same investment philosophy, or because you adopted and modified your approach (caught on the SaaS train)?
Thanks.
Bashuzi
Yes, absolutely read the article you posted.
…And if people are ‘just now catching on to he power of the Saas business model’ as many have said, his argument throws a big wrench into the mix. Going from infinite value to zero in 10 years time, if this view hasn’t been considered or the Saas business model was taken too simplistically, could be enough to ‘recalibrate’ expectations…
David Skok is called the godfather of SaaS for good reason. I stopped reading the article at
Our first attempt to model this phenomenon, showed that there is a point where the customer churn starts to bring down the revenue. Here’s a graph showing what would happen if you had a cohort of 100 customers that initially started paying you $100 a month, but each remaining customer increased their payment by $5 every month. The monthly Customer Churn Rate is 3%:
because something triggered a red flag, that something was the word “cohort.” I’m not a fan of DCF because while it sounds perfectly plausible in theory, in practice all the inputs are mostly guesswork. GIGO! Why a 10% discount rate in a ZERO interest rate era?
The text by Skok I quoted above seems logical but I had my doubts so I started playing with a spreadsheet. First I reproduced his 5 year 100 client cohort. It came out pretty much like his but the curves had kinks in them. Why? I also though that increasing the pay by $5 a month didn’t make sense. Why not 5%, after all, 5% is $5 when you start with $100. 
The reason for the kinks, it turns out, is a rounding difference with huge implications. 3% of 100 is 3 but 3% of 97 is 2.91 so you round it to 3 clients, not quite right and a huge difference. By rounding, the cohort dies in five years. The kinks exist because you start subtracting 3, then 2, and finally 1. If you use 3% not rounded the cohort never dies, it approaches zero but never gets there. It does not make much difference in the first chart but I have a surprise for you in the next ones.
Cohort size: http://softwaretimes.com/pics/cohort-size.png
The next chart compares rising the revenue by $5 vs. by 5% a month using the more realistic 3% shrinkage. The green line is the $5 increase which matches Skok’s while the red line the 5% increase.
Cohort-payment-5 %: http://softwaretimes.com/pics/cohort-payment-5.png
What if the increase is only 3%?
Cohort-payment-3 %: http://softwaretimes.com/pics/cohort-payment-3.png
So the secret is up-selling enough to make up for the cohort shrinkage!
A final note, I said above that I’m using the same web host for over 15 years and I’m still paying the same $35 a month. What has happened is that the servers got faster, the bandwidth was increased, the storage space was increased, they added an off-site backup service and an off-site emergency server. Clearly their costs have been falling and they didn’t pass it all to us the customers. Unlike most businesses, high tech is highly deflationary, costs keep falling and it certainly applies to the hardware side of SaaS.
Denny Schlesinger
These companies weren’t declining because of company specific business problems, but they were all declining simultaneously because of sector rotation. And so we are now having people show up speculating about whether these companies with no net debt and 90+% of their rapidly growing revenue locked in and recurring, and with 70% to 90% gross margins will go bankrupt, bankrupt(!) of all things??? What is the basis for that ??? That’s so unlikely as to border on the impossible. But when the market goes down, these people and these ideas always show up, so I shouldn’t be surprised.
Certainly feels like Stocktwits here lately with all these doom prophets warning us for the end of the SaaS world. Thankfully sanity still prevails on this board. Keep up the good work guys, learning every day here.
brittlerock said:
“I think a recession in the relative near term is inevitable at this point. I can’t fathom what would turn the economy around quickly enough to forestall one and IMO there’s little doubt that we are headed in that direction.”
Having restrained from a reply to this for two days out of concern of continuing off topic discussions, i must say that this conventional thinking, like many conventional views in the market, will likely prove to be incorrect. In any case, a near term economic decline is certainly not close to inevitable. Australia hasn’t had a recession in 28 years! Moreover, even if we experience a macro downturn, it doesn’t mean hypergrowth stocks or stocks in general will hit the skids.
Also, comparing this period or any other period to the dot.com bubble is the other narrative i would like to briefly refute.
Nearly every major company on the planet allocated substantial funds to modernize computing systems during the last 5 years of the previous century. You didn’t have to be that smart to predict that tech spending would drop precipitously in the first quarter of 2000, from the frantic 50-100% growth to modernize their computer systems before Y2K to 10-15% growth immediately after Y2K. It is the only time i know about when the inevitability of tech spending falling off a cliff was so precisely predictable.
FUD beginning in 1995 about the impending computer systems disaster on January 1, 2000 was pervasive and mostly justified because the double digit year change was unfixable and that impending disaster frightened the entire business world to modernize computer systems before that date. So by 2000, everyone was up to date and tech spending was over for a few years.
When posters compare the present to 2000, they miss that Y2K bug which was a giant variable. It’s useful to note that other sectors grew during that period 2000-2003. For example, BRKA hit a multi year bottom of $40,000 in early 2000. These 3 years remain my best in relative out performance.
My business is leadership and only after i have satisfied myself the CEO/Chair is true greatness or something approaching that, do i look deeper into businesses that otherwise look like enduring growth stories. My view is that companies tend to grow or shrink more to the size of their leadership than the size of current estimated TAM/markets and products. TAMs can be expanded if the capability and will is there. AMZN TAM was originally thought to be books, then all online retail, now much more. BRKA was a declining textile manufacturer when a young superstar overpaid for it 55 years ago. Or TAMs can shrink as with GE and decades ago in the case of GM.
My bet is that the winners among the upstart cloud companies will include those led by exceptionally capable, committed, honorable, shareholder friendly CEOs. Usually it works out that way. Sometimes it doesn’t. AYX, ROKU, TTD, ZS, WIX, ESTC, ANET, APPN, RNG, and OKTA are among the young companies today with that kind of leadership, IMO. Sometimes i get it wrong.
My apologies for straying. I very much wish to comply with the rules here, which i respect as authoritative, wise and constructive.
. . . IBD has basically issued a sell report on most of the stocks discussed on this board. . . . This normally means at least a few quarters before these stocks return to their glory, and of course this depends on their performance exceeding expectations. A few of these stocks might be large winners, but most will never regain their highs.
John,
Your devotion to technical analysis, and IBD’s use of it in particular, is striking. In itself, it is inappropriate to the board, so I will redirect the conversation to something more relevant, but that also addresses your point head-on.
First, I note that worrying about what most of the companies will do is pointless: If a minority of the companies beats the market going forward, as they have over the last year or so, and the rest go out of business, then in time such a portfolio would still result in market-beating returns. I prefer to make money by investing, not console myself with a majority that achieved mediocrity. But I risk diverging into portfolio management.
Second, I note that volatility is normal, including sector rotation, and does not “mean” anything, in spite of many being, shall we say, fooled by randomness. Volatility is, in fact, particularly to be expected of companies with the greatest future prospects, because they have a chance of having a big piece of the sort of future that is the most difficult to predict – the kind least like the past.
Speaking of predictions, I will make some in response to your predictions, above.
AYX
ESTC
MDB
OKTA
TTD
TWLO
ZS
I stipulate this list because without doing so, it is impossible to agree or disagree on whether a prediction turns out to be accurate, without which meaningful conversation is not possible with regard to this board’s stated rules.
I chose an odd-numbered list because it is unambiguous, then, whether “most” performed as predicted. If you have a different list in mind, please state it, or else accept this list for the record of your predictions as well.
I predict that within 1 year, most of the companies will be 30% higher than their close as of Friday, September 13, 2019.
I predict that within 2 years, most of the companies will have achieved new all-time highs on their way to whatever their eventual fate is, and a minority at least will have done within a year. This is stark contrast to your prediction of “never.”
I predict that over the next 10 years, there will be more than one instance of volatility such that most of the companies will be cut by 40% or more – perhaps much more – from their highs. And I further predict there will be much doom-saying about them at those times, none of which will turn to be true for most of the companies.
I predict that a minority of the companies will lose our collective interest, and my personal investment, over the next year. The future is uncertain, as discussed above. This is another artifact of our investing focus being about the prospects of the business, and not the TA that you have brought to our attention.
If any board manager feels this post is off-topic, please let me know and I will FA it myself.
Warmly,
Wot
You wrote that by July of 2015, you were up by more than 50% for the year, but ended the year up 16% or so (which still beat the indexes that year). Over that period, your stocks did horribly while the major indexes did nothing much — similar to now.
Yes, I recall 2015/2016. It was a crazy year. By August 2015, my portfolio was up something like 60% YTD. That was the highest percentage gain I’d even had and the rise happened very quickly. Some of the favorite stocks at the time were SWKS and SKX. We were using the 1YRPEG as a main metric to make decisions on which stocks to buy and how to allocate.
1. Do you guys recall other times something similar happened (Saul stocks tanked, indexes did OK)?
As I recall it, the market (S&P500) ended up dropping something like 20% between the Summer/Fall of 2015 and February 2016 (Jamie Dimon bottom). The stocks that I was in all dropped 40-60%.
2. 2015 episode took many months to get the loss recouped (and then much more). Did these other episodes take similarly long time (late 2018 was quite different: market and Saul stocks both tanked, and in the end the recovery was quick and furious)?
The 2 largest allocation stocks that I had were SWKS and SKX. SWKS peaked in May 2015 at around $110. It had dropped to the mid-$60s by February 2015 and it took 2 years to get back near the previous high of around $110 but it didn’t stay there. More than 2 years years later the stock is now at $82. SKX peaked in June 2015, and it never fully recovered and is still 30% below that peak.
3. Do you think the ultimate takeoff in 2017 and 2018 following the 2015 underperformance the result of sticking to the same investment philosophy, or because you adopted and modified your approach (caught on the SaaS train)?
You can read about this switch here:
https://discussion.fool.com/why-my-investing-criteria-have-chang…
and here:
https://discussion.fool.com/oh-this-time-it8217s-different-33123…
I think there are both differences and similarities between the 2015/2016 period and today.
What is different
the companies and the business models are very different. SWKS is a cyclical business that greatly benefitted from the adoption wave of the mobile phones. SWKS has several large customers that make up a huge percentage of their revenue (customer concentration risk). SWKS does not have recurring revenue like the others. SWKS is sensitive to China and trade wars and supply chain risks. SWKS is sensitive to currency fluctuations because it has a large percentage of its business outside the United States. SKX has it owns sets of risks that are distinct from the SaaS companies.
In the 2015/2016 period the overall market dropped about half as much as the then “Saul stocks” but they all dropped. In recent weeks, the market has been up yet the SaaS companies have dropped a lot.
What is the same
The companies that Saul and others are invested in have dropped a lot.
During both times, the companies that Saul and others were invested in had run up a lot more than the the overall market. I think that this is an important similarity and should be examined and discussed in more detail. Specifically, how much of the previous outperformance is “justified” (i.e. due to the underlying performance of the businesses) and how much of the outperformance is more “flimsy” (i.e. due to the stocks becoming in favor more; and this is more subject to a reversal than business performance). Maintaining the second part of the outperformance is dependent on the stocks continuing to stay in favor while the former part is more solid because the businesses have created more support for tangible value.
The psychological effect on an investor (i.e. us) is somewhat similar. During both times, we were happy and euphoric about the increases. More importantly, we explained and justified the stock price increases that we had seen by some logical arguments. In 2015 it was because the 1YRPEG ratios of our stocks were low (compared to other stocks) so the stocks had a better value. This fell apart when the stocks ceased continuing to post their previously high growth rates. In fact, for some of the companies, the revenue growth actually went negative. As I recall, the stock price dropped before we noticed that the business growth had slowed. Today, we are explaining and justifying the stock price increases by the business model, the recurring revenue, the growth rates. From our analysis we believe that the growth will continue. However, one explanation by Saul could possibly lead us into trouble. That explanation is that others have now caught on to our SaaS stocks and that is why the EV/Sales multiples are higher. This is a way of justifying the higher multiples. However, we don’t really know where the multiples will go or finally end up. They may revert to the previous highs, they may stay around to where they have dropped, or the may fall further. Saul’s opinion/argument that others have now caught on and so therefore the multiples will stay where they were or may even go higher is an opinion that may or may not turn out to be true. We really don’t know. An alternative explanation is that the SaaS stocks (and other stocks that have increased a lot in price) continued their increase due to momentum and now that momentum is gone. Will it come back or not. I certainly don’t know.
How the business goes the stock price should eventually go. This is the voting machine/weighing machine thing. The voting machine definitely played a part in part of the rise. The weighing machine also played an important part in the rise because the underlying businesses have performed. When in 2016 the business didn’t perform they dropped. We need to keep an eye on the businesses but we also need to consider the possibility that the weighing machine may be in the process of being recalibrated.
So here we are in the middle of our violet storm. So what should we do? Everyone will make their own choices. Personally, I closed out most of my options positions so that I will not be in a situation where I am forced to sell (if the stocks continue their decent). I did the opposite in 2015, adding to my options positions when the stocks begin to drop. At the time, I continued to believe that the analysis was solid, that the companies were great, and that the growth would continue. Well, it turned out that I was wrong and that the companies were not on sale after all. There were margin calls and that episode could have wiped me out financially. But it didn’t and I learned some valuable lessons.
Another question is when will our companies recover now that have now dropped between 20% and almost 50% (ESTC being an exception: only down 10%) from their July all-time highs. I don’t know. I tend to think that it could be a while (and they may not have bottomed yet). This is just my opinion, but I would be surprised if these stocks go back to their all-time highs before the end of 2019. It will really depend on 2 things: how the businesses perform (and we’re only getting 1 more cycle of earnings results before the end of 2019) in the coming quarters and when will the companies come back into favor. If the businesses perform then they should also come back into favor but at what multiples. No one can know, but my personal guess is that the highs on most of the companies might be matched in 18 months with a range of 6-24 months. If it’s 6 months then the multiples will need to go back up. If it’s 24 months then the growth of most of the businesses should be able to support the previously high stock prices with a lower multiple; and this is what’s keeping me in the stocks. Again, this is just my personal opinion and I could be wrong.
Chris
A few of these stocks might be large winners, but most will never regain their highs.
How do you know?
Couple of points, first of all it is not clear whether Peak valuation for SaaS companies is here, one week of growth selling and value rallying doesn’t change any long-term thesis. On that basis, we dont’ know what is the peak valuation, we may only know that on hindsight.
On the other hand, not all fast growing companies eventually don’t succeed for various reasons. Industry consolidation is something everyone understands.
Let me thrown in “Center of gravity”, that is some existing players are so big, they occupy a unique place in customer mind share/ IT spend, etc. While they may not have the niche products to begin with, either they catch up overtime or buy their way into the market. You have seen many examples of promising companies taken over by bigger rivals. One challenge of late on this is, legacy IT companies valuation vs these hyper-growth companies. It allowed SalesForce to buy some companies because it enjoys similar valuation. However, a better template is IBM’s purchase of RHT. Once the company gains sufficient size and predictable revenue, profit profile they could still be bought by legacy IT companies.
Each of the scenario allows investors to participate on the upside up-to a point.
In all of the cases, unless the current price is peak valuation and followed by an immediate decline in slow price, there is a potential for while valuation may come down and the company’s growth would have expanded the market cap or market price.
On the other hand, we also know a large number of companies are bought out regularly. Also, the assumption that a company that is growing today at 80% or so will continue to grow at the same pace, or will have a gentle decline in growth is a dangerous assumption.
Thanks Chris for posting the detailed reply to my questions. I really appreciate your perspectives.
Personally I am inclined to agree with you that this time it’s probably going to take a while to get the prices back to their July peaks (hope they do), and we probably haven’t seen the bottom yet. In the short term I probably will raise some more cash from these stocks and put to some more defensive sectors to wait out the storm and earn some return before getting my hyper growth allocation back. I’m thinking about the stocks whose EV/S are still relatively high (maybe ZS and TWLO are more reasonably priced now?).
That part of my account may end up missing some of the rally if I get back to hyper growth allocation too late. But if there is more to fall and recovery is a slow slug in this space, the opportunity cost of no action may not worth it.
One thing we learned these past few weeks is that contrary to what Saul sometimes says, valuation at the end of the day always matters, in addition to every thing else that gets analyzed on this board.
Bashuzi
I apologize. That was meant to be a private reply. Totally off topic.
A couple quick thoughts.
A little excerpt from Beth Kindig’s blog/newsletter
Who is she? Good question, so I looked up her resume. For the last ~5 years she has: ‘Directed the content marketing and go-to-market messaging at Intertrust Technologies that provides enterprise PaaS cloud services, cybersecurity, trusted data, health tech…’
She does content marketing. Not somebody I would rely on to speak about stocks as she is a pure stock cheerleader who majored in Buddhist studies. I am not making that up.
• The larger the market, the safer the investment…
This is false, the grocery store business is huge and you’re lucky to make 1% margins in that line of work. Nobody thinks of them as safe. Banking and Mortgages was a huge market in 2007 and we know what happened in 2008.
• Ignore earnings estimates…
The difference btw firms that trade at 6x EPS, and 12x, and 25x and 60x eps and 30x sales is the latter are the ones that continually beat and raise their estimates, and the ‘deep value’ cyclicals are the ones that do not and can go from 8x to 4x eps at times.
Since, as investors, we’d like to know if our stocks are going from 15 to 30x PE or the reverse, one must pay attention – especially to the earnings estimates that are coming from the Company itself. Anyone who says otherwise is a …well, a content marketer I guess. Look at NEWR today.
Some of the very expensive SaaS stocks will turn out to be ‘safe,’ because they end up winning their category or give a decent return from here as the solid #2 choice. Many will not be ‘safe’ by any definition of the word with big rallies followed by 60-80% drops in a relatively short period of time as has happened before.
Long TWLO, FB, MA, ADBE, CRM, IQV, AMZN.
I also saw that on her LinkedIn profile (finished in 2009). Naropa University is also not a school I have heard of. That said, perhaps she brings a different perspective. A few of her thoughts and ideas likely have some solid merit, and should be judged on their own rather than based on what she majored in. Broad, macro idea are probably not something to take from someone with that limited background, howevever.
