None of that stuff will matter if we’re invested in great companies. So let’s discuss the long term pros and cons of specific companies.
Not including valuation as part of an evaluation of a stock (not the company…the stock) as being a good-to-great buy that will bring in, or surpass, the CAGR you want, is akin to evaluating pro athletes but ignoring their age.
You look at an athletes recent stats and go “see…they are great…I will just give him a contract for 5 years!” That is like ignoring a stock’s valuation and saying “I have a 5-year outlook” to explain away any concerns on valuation.
Zoom (ZM) at peak was about $25b mkt cap or more. Let’s say you bought then and said “hey…I don’t pay attention to valuation, as over 5 years, any growth stock with incredible metrics will wind up being a great investment!”
If you wanted a 20% CAGR, then after 5 years, Zoom, a video conferencing app, would be worth just over $62b mkt cap. Does that even make sense? Does the TAM even exist to justify that? What P/S would it have to be at that point?
If you wanted 25% CAGR over those 5 years from your ZM investment, their mkt cap would need to be $75b. Basically 11-12 times the current market cap of Alteryx. Huh?
Commonsense says growth stocks under $3b with P/S under 15 have a better chance to drive higher share price returns than growth stocks over $20b with P/S over 40-60. Just because the latter have higher growth rates (for now - not forever) doesn’t mean they will be good investments.
I am too busy to argue this anymore. Good luck all.
Dreamer