This thoughtful post is set for deletion, per Saul.
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“Now, as the stock prices were falling to ridiculous levels for no particular reason except perhaps sector rotation" - Saul
“I suspect that this is what has happened to most of our companies: they are just plain massively oversold.” -Saul
Saul,
Respectfully, I don’t know why you think your stocks, in particular, are at ridiculous levels and/or massively oversold. If we aren’t supposed to talk about valuation on this board, why is it ok to claim they are undervalued but if you claim otherwise you get attacked as a “short seller”?
The stocks you current invest in happen to literally command the highest multiples (still) in SaaS/growth/cloud:
https://twitter.com/jaminball/status/1499860696720293888?s=2……
Jamin Ball is a pro-cloud investor that posts great content on cloud companies, whether comparing multiples or posting S-1 overviews of IPOs in this space, etc…
Per that link, these are the companies with the top multiples, in order:
NET, SNOW, BILL, DDOG, S, ZS, TEAM, ZI, CRWD, Hashicorp. This is not surprising as most, outside of unproven Hashicorp, truly seem to be outstanding businesses with enduring growth prospects.
He also lumps cloud/growth into cohorts, and shows how the multiples have been over time, going back to 2015:
https://twitter.com/jaminball/status/1499768954369163267?s=2……
You can see from Summer 2020 thru Nov 2021, the multiples shot up quite a bit.
This simply looks more like mean reversion vs an excessive beatdown.
He points out here that many companies have seen their NTM multiple contract (ZM being the poster child for obvious reasons) since the covid highs.
This is really interesting as you can see the individual stocks and what their multiple expansion or contraction has been since Feb 2020:
https://twitter.com/jaminball/status/1498425025954725896?s=2……
BILL, DDOG, ZS, and NET (especially NET) are all still at higher multiples today than they were back then. Some companies like SNOW and MNDY not shown here at they were not public yet in Feb 2020.
Point is, I think it is fair to say:
- These stocks are well off their ATH’s
May not really be accurate to say:
2. These stocks are undervalued.
Because the market clearly is valuing them higher than literally any other stocks out there.
I always come back to TTD as an example of covid multiple expansion excesses.
TTD was/is always fairly solid and steady. But advertisers actually stopped spending for a bit during early covid days, and TTD actually saw total growth in 2020 slow DOWN quite a bit. Yet their stock grew 3x.
So when stock prices start growing much faster than the companies’ actual growth rates (whether you measure by rev, gp, # clients, etc…) then it seems reasonable that you can eventually expect the stock price to pullback and get back in line with the growth rate.
There seems to be a lot of people on these boards collectively aghast that stock prices have fallen, and have labeled it unfair or unfounded, yet when the same stocks climbed 200-300% in 2020-2021, that seemed to be perfectly reasonable.
Maybe things are just balancing out.
The positive here may be that as the stocks hit a normalization or fair value, that their future returns can start being based again on fundamentals and actual growth vs just whatever the entire market happens to be doing. In other words, putting covid behind us, muscling thru inflation and the temporary noise of Russia/Ukraine, can lead to an environment where the elite companies ARE truly treated differently, and not just going up along with PTON, PINS, crypto coins based on dogs, NFTs, the countless SPACs launched in 2021 (which have universally crashed to earth, it seems). Or everything non-tech going up due to “reopening” whether they were good businesses still or not.
The best gains seem to come after the resets, which is no surprise.
I don’t know for sure if this reset is over or if more is to come, but I welcome it if it can bring rationality back to individual stock picking.
Enjoy the weekend,
Dreamer