Ethan did a great job of bringing that market timing thread back to what I was discussing yesterday: not market timing, but evaluating companies (and their valuations): https://discussion.fool.com/i-don39t-think-we-should-use-short-t…
ZS- Its previous all time EV/S was 35. Today it hit 39. If you assume that next quarter will be around 60-70% growth over last year then once ZS reports in a few days they should be back down to an EV/S of 35. Personally I just see the market taking that into account and we are getting our price appreciation a little bit early. I think ZS has gotten a little ahead of itself but not horribly so.
You see the problem, right? You’re basically saying, “If we can just get a few more 70% quarters, everything will work out!” You’re paying for the growth before it actually gets here. And this is why I worry. I don’t care about the valuation in a vacuum. I worry about what it means. And it means that we’re expecting hyper-growth from Zscaler the company for longer and longer. And I’m just not sure how big it will get. Will it take over the online security world for years and years to come? Then $11 billion is a crazy bargain! It will be a $100b+ company! But aren’t we a little ahead of ourselves? In the last 12 months they’ve had billings of $330 million. They aren’t even selling to the Googles and Amazons of the world like Arista is. Zscaler is a small company. We need to remember that. The market isn’t right now.
OKTA- OKTA’s previous all time high EV/S was 26 when it was growing 60%. It is now growing 50% and its EV/S is up to 31. Lets say it has a solid beat next quarter and does a 130 million dollar quarter, its EV/S will still be around 28. Personally I think OKTA will need to accelerate its growth to or suddenly start throwing off tons of cash for it to justify that EV/S. I think OKTA is pretty overvalued right now unless it can do either of those two things.
I agree with you on Okta. I could see their growth possibly ticking back up, but why does the market seem to be expecting it will soar?
Bear