Growth: fast vs slow

AYX has $182m of revenue in the last 12 months. TLND has a little more: 190m. But AYX is a $3.8b company (PS just over 20) and TLND is a $1.2b company (PS of about 6.5). Seems like TLND is super cheap and AYX is crazy expensive, right? However…

Growth rate is everything.

If AYX grows 55% they will have 282m in the next 12 months.

If TLND grows 20% they will have 228m in the next 12 months.

Wow. Makes quite a difference. And that’s just one year. The next year…

AYX at 50% (slowing down) would reach 423m. TLND at 25% (speeding up) would only reach 285m.

Ouch! And on and on it goes. TLND could never catch up! Even if TLND accelerates back up to 40% (I warn you — don’t bank on this!) in a couple years and AYX slows down to 40%, AYX would reach 592m and TLND would only hit 399m. TLND would just get further and further behind.

Not to mention, AYX is already showing a profit, and TLND despite the revenue slow down is maintaining their intent to “invest” in expansion.

I too have fallen into the trap of saying, “the PS is so low, it must be a steal!” Don’t be fooled. You’re betting on better days in the future, which may never come. But even if they do, it could still be the case that your value play turns out to be a value trap.



I pay little attention to value. Except when growth is materially slowing, such as shop.

$270 million in revenue last quarter. Roughly $1 billion annualized. So if they can grow 50% the next two years then 40% the next year they’ll be at $3 billion revenues. Which means they better come up with new revenue avenues because the ones they have may make that number difficult to achieve. Growth has been slowing dramatically albeit still very fast.
So let’s assume they earn $300 million as you would expect a mature very well run company to make on that revenue. That gives shop a P/E ratio of 50 3 years from now. Assuming the stock doesn’t go up at all. In other words dead money.

MDB, aye, SPLK and the rest, that are not slowing growth, I don’t even look at valuation ratios but market cap relative to the market opportunity.

I’ll buy the stronger company at ridiculous prices over the weaker but cheaper company every single time. Being cheap has cost me to lose out on so many opportunities it is not funny. And being lavish only becomes relevant when the company slows. Which is why we try to get companies with an advantage rather than just growing fast. A soft landing in slowing is preferred. It then growth can reaccekerate.


Fat guys that are behind don’t suddenly speed up just because they are behind.

Only beer goggles at 2 am make the ugly girls look better.

Better to dance with the prettiest girl in the bar.

The stock market aint a church, its the dive bar at the end od the street on the bad side of town.

Qazulight (Saul’s plan is to only dance with the prettiest girl in the bar.)


AYX has $182m of revenue in the last 12 months. TLND has a little more: 190m. But AYX is a $3.8b company (PS just over 20) and TLND is a $1.2b company (PS of about 6.5). Seems like TLND is super cheap and AYX is crazy expensive, right? However…

Doesn’t the question of which is a better investment become which of these 2 companies can realistically maintain their growth rates over the time period under consideration? If AYX can average 40% over 5y its P/S drops to 3.7 if you assume no change in stk price. TLND, if it can average 25% ends up with a P/S of 2.2.

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very well said Paul.

this is the single biggest lesson i am learning on this board and from Saul.

Qazulight, have a rec for the poetry, sort of…

Denny Schlesinger


A company is worth the value of its future cash flows.

Future cash flows go up in 2 ways:

  1. Revenue growth

  2. More profitability, turning more of the revenue into cash.

So you can’t just look at revenue growth, you have to be confident the company can turn that revenue into cash, and hopefully, a higher and higher % of the revenue to cash.

You can take a company growing at 100% revenue growth right now, and if it grows at 100% forever, but has negative cash flow and never improves its profitability, the company will go broke (if it can’t borrow any more money).

  1. and 2) are both important.

So I like to see both 1) and 2).

I’m Ok with lots of revenue growth and not much profitability yet because the company is focusing on revenue growth, as long as the revenue growth isn’t slowing much (and really like to see it accelerating). And I have to see the potential for the company to turn on 2) in the future.

Once the revenue growth starts to slow, I want to see that turned into more cash.

Let’s use SHOP as an example.

SHOP has started to slow revenue growth, and isn’t showing much improvement, if any, on its margins (profitability).

So you have some investors on this board who really dislike that and have sold. If that continues, the company would be in trouble because to get profitable the company would have to cut spending, which hurts revenue more, etc.

On the other hand, we have some on the board who think revenue growth will stabilize or go down slowly, and they will be able to turn on the margin improvement and start making money because they have a strong business.

Talend was just talked about a bunch, both 1) and 2) are heading in the wrong direction there.

Hope that helps.

who reduced his SHOP position, but is holding a small position and watching closely in case they start to improve margins


Yes both rev growth and turning that into profits cash is key.
Talend is hitting a pause due to its slowing onprem business which they didn’t expect or could’nt project. If what they said about cloud growth is true and I realize there are some questions about the #s (I posted on it elsewhere - links below) then growth should accelerate given their superiority in cloud. I sold at 46 as I didn’t want to wait (would have sold AH but for my Vanguard account). But interesting one to monitor in future for sure.……

I am offended by you post Qazulight. How about thinking again and finding something to say that is not objectifying women.