Thanks, Bear.
I think the ratio is useful as it is relatively simple to calculate and provides another data point.
There is an easy way to calculate this that gives a good approximation as long as gross margins don’t fluctuate much from quarter to quarter. Just take the P/S and divide by the gross margin the past quarter.
As an example, PS of 15 divided by 0.8 (80% GM) gives the approximate P/GP of 18.8.
I’m sure others have figured that out already, but it makes the calculation a bit easier though not perfect. Since GM doesn’t fluctuate to a great degree with SaaS companies (CRWD excepted), I think it can be useful.
The highest two I’ve seen thus far are SHOP and CRWD at 44.1 and SHOP at 42.7.
On a forward basis, CRWD is far more reasonably valued.
I haven’t analyzed ZOOM and would expect it to have similar characteristics as CRWD.
Here is what I show for P/GP for several companies. The growth rates are mine and are revenue growth which also assumes gross margins are relatively steady over the next 12 months.
Ticker P/GP FP/GP Growth%
AYX 20.1 13.4 50%
CRWD 44.1 24.5 80%
ESTC 24.1 16.1 50%
MDB 28.3 20.2 40%
PAYC 21.5 16.5 30%
ROKU 33.5 19.7 70%
SHOP 42.7 30.5 40%
TEAM 26.4 20.3 30%
TTD 20.4 15.1 35%
TWLO 20.9 14.9 40%
ZS 24.5 16.9 45%
A.J.