To a regular, and I think thoughtful, poster on Saul’s board. I have sent this to Beachman off-board:
Good morning, Beachman- I appreciate your work. As a lurker on the board trying to understand what may or may not be changing paradigms, I read with a discerning eye and have two questions for you:
#1, when in 2020 did you buy into NET?
#2, if you and I were in a business down the street, and this year our sales for the whole year were $2.50, which is double last years sales of $1.25…and mind you I want you to consider these to be real numbers…and you offered to buy me out and I said “sure, for $109;” would you see that as a fair price for my half of the business?
Now let’s assume that sales continue to double every year; $2.50, $5, $10, $20, $40, $80, $160…now, at $160 perhaps you are looking wiser. But now it’s 2028. It took seven years of you looking un-wise to become, perhaps, wise, depending on what else has transpired in the universe in those seven years (what cold possibly change?). That is the arithmetic of a NET bet on a Price/Sales basis. Not to put too fine a point on it, but how long can you live on the profits of $2.50 (even at 80% GM)? This is why, in the Olden Times, you’d want to give me $2 for my $2.50 worth of business. It just makes more logical sense.
I’m not suggesting that NET is worth $2; I’m suggesting that’s it’s worth something between $2 and $109…and if I meet you half way, at $55 (you now look wise in 2026), how is that going to feel and will your investment portfolio and/or emotions hold up?
I want to be clear that I am not being critical. I am not The Market. The Market dictates value, not me, so I either subscribe or decline to subscribe, at my peril in either case.
I wish I could post this on the board, but as you know it would not be allowed.
Thoughts?
All the best to you
-Randy