Stocks that made the cut for me. Don’t sleep on ROKU and STNE.
Stock Oomph. EV/S/O
AYX. 2.01. 6.64
ESTC. 2.08. 10.30
MDB. 2.09. 8.19
SMAR. 2.09. 7.10
TTD. 1.77. 8.40
TWLO. 1.78. 8.19
PVTL. 2.00. 4.36
ROKU. 2.14. 5.09
STNE. 2.52. 4.11
Zs. 2.16. 12.40
Surprised to see PVTL so high of the bunch.
Here’s a perfect example of the concerns I have about Oomph (or any other ratio). They can easily be a mathematical contrivance that provides a false sense of confidence. I was in PVTL until the CEO gave a disastrous performance during a quarterly review. His comments wandered hither and yon at length without actually saying much of anything of substance. That was all the red flag I needed to bail and not look back. I tried to imagine myself as a subordinate listening to him in order to chart a course of action based on his direction. There was no direction, it was a meandering dialog. Lengthy as it was, there was virtually no take away.
Best of luck to you in your investing endeavors (and life in general for that matter). But, IMO there’s so much more to investing decisions than arithmetic.
I’m invested in all the stocks I mentioned except PVTL. I think in a quarter or two it may be a good investment. But I’ll wait and see before investing in them.
And I like the Oomph factor. I ran 50 high growth stocks through this and these were the top few, best of the best.
Here’s a perfect example of the concerns I have about Oomph (or any other ratio). They can easily be a mathematical contrivance that provides a false sense of confidence.
Everything we do gives us some level of confidence. Be it an anecdote about a product, comparing a number on one quarter’s filing to another, listening to a CEO talk, believing some stranger on the internet when he tells you the price will go up, etc.
Oomph will not predict the future for you, but I don’t see anyone claiming that is its intention. It’s a tool to give some context on growth and price.
Be careful on STNE, its thesis has been broken. An incumbent Brazilian bank has made moves to make them far less promising as a company. https://www.fool.com/investing/2019/04/18/heres-why-stoneco-…
I posted some concerns about the oomph factor a bit back and showed some correlations between EV/S and oomph, which I remember here being strong and positive, suggesting there was some new information in oomph that was not EV/S, but not a ton. I think it can be useful, but a bit more work needs to be done to convince me (and maybe I should do that work, but too busy finishing my dissertation).
I want to share two other things I was thinking about reading these reviews. The first is the idea of selection on the dependent variable. In social science, this is basically going out and finding something you want to find (high growth, solid companies) and then coming up with statistics based on those number that “explain” the outcome. This is really bad because you don’t have the necessary variation to see if your statistic (oomph) is actually explaining the outcome (high growth, solid companies) since you only looked at relatively good companies to start out with. The way to check this would be to find some bad companies, some ok companies, and some good companies and compare across.
The second is a scale/measurement concern, which is also related to the first. Since I’ve only seen this analysis on a handful of companies (10-15 and most of them are good companies), I have no clue how to understand the units and how those units are related to the outcome (topline revenue growth, retention, etc.). Is a one-point difference meaningful? How meaningful is it? In other words, how is this metric distributed? Imagine you have a scale that runs from 1-100. A 1 unit change is a 1% change in the scale. But imagine that same scale runs from 1-10. There a 1 unit change is a 10% change in the scale. The unit is the same, 1 point each time, but given the range of possible values these metrics can take is important to consider.
I hope this is helpful! I am new to the board, but been lurking for a few months and wanted to bring some of my skills(PhD in quantitative social sciences) to this community.
B
Be careful on STNE, its thesis has been broken. An incumbent Brazilian bank has made moves to make them far less promising as a company
I’ll only make one post on this thread about STNE since it’s main purpose is to talk about Oomph factor. Declaring their thesis broken is amazingly premature. Many Brazilian banks have tried something like this over the years and STNE has continued to thrive. Also, Brazil’s antitrust watchdog launched an investigation on the incumbent Brazilian bank (Itau) last month as soon as they announced their move.
STNE has already preannounced their earnings and growth has slowed to 85% (growth slowdown was well before Itau’s announcement), so we’ll learn more next week.
CloudAtlas
Thanks Doppelg. Yes, I agree with you. It’s true that the entire notion of “confidence” in an investment thesis is (or should be) a process of assembling information from a variety of sources. The more trusted the source, the more weight given to the validity of the information. Trust is most often based on some kind of track record. For example, I consider Saul a trusted source. I pay a lot of attention to the things he writes. I don’t try to emulate him, but there is a fair degree of commonality between our portfolios.
I was referring to folks who use a tool like the Oomph Factor, rank stocks based on their respective Oomph and then execute orders based primarily if not solely on the Oomph Factor rating. Or, to make it more generic, plug in some other ratio or for that matter any mechanical process. The argument for this approach might be that it removes emotion and subjectivity from the decision. There’s a process which is formulaic and when the process is followed the decision is rendered. It’s a fair argument. But it depends on validity of the process. Conceivably, such a process could be derived from an analysis of past experience. Application of machine learning and artificial intelligence techniques, maybe some people some where have already developed such a process. But if so, I’m not aware of its publication.
Separately, I owned STNE briefly but sold my small position some time ago. It was that subjective part of my decision process that became uncomfortable with the investment. In general, any Brazil based business makes me uneasy at this time, so there were environmental factors that partially drove my exit. And then there was the business itself, I didn’t see much of a moat.
I’m having problems with my Oomph / EVSO numbers on STNE (using Saul’s method). Can anyone tell me what I have wrong?
They give net margin of 29.5. I can’t find gross margin anywhere - I used 41% from yahoo but I’m not sure if that’s right.
Growth Squared, 114% - so would this be 4.58?
Last Q rev x4 = 542 (in USD).
Recurring Revs, I have at 13%.
I’m getting Oopmh 1.93 and EVSO 7.33.