A little over a month ago I had the harebrained idea to run the “hypothetical” HPE30 (the PE each company I own would have if they had a net margin of 30%). I’ll be the first to say, it’s more than rough, and works better for some companies than others.
That said, it’s not entirely useless, either. In fact, last time I identified Wix and Hubspot as potentially undervalued, and each is up since then. I thought it might be worth running it again and seeing what’s changed.
ticker Nov17 Dec22 SHOP 59.3 59.0 ANET 41.0 41.4 WIX 22.1 23.2 HUBS 28.5 31.4 SQ 63.7 50.2 PSTG 12.6 ALRM 22.7 19.1 INST 23.4 22.4 TLND 29.1 26.6 HDP 18.3 19.2 NVEE 6.5 TDOC 34.3 MU 7.8 TTD 26.2 24.5
Shopify and Arista are right where we left them, pretty much. (Duh, because the shares are right around where they were on Nov 17.)
Wix and Hubspot look a little more expensive, but still quite attractive (esp Wix which is growing faster!)
As anyone who owns it knows, Square has fallen back to earth quite a bit – but it certainly still looks expensive here, yet less of an outlier than before.
Pure Storage sure does look like a bargain to me, as I had already decided.
Same for Alarm – their share price has fallen quite a bit (you know, I sometimes wonder if the .com in their name scares some investors off, something I’ve wondered with Stamps .com as well…but I digress)
NV5 might never have a 30% margin, so I kind of ignore this analysis for them.
Micron, as I’ve discussed, is off the charts cheap, but we know why.
This seems to be a good visualization of valuation, but always more important is discerning WHY something is valued like it is. Square may get a premium because growth is actually accelerating…also no one wants to sell it and then see it get acquired the next week. Shopify is valued so highly because it’s growing like nothing else. Hortonworks, despite great growth, may not be valued higher because they’re still a long way from GAAP profitability. Etc.