What a week! First, like many of you, my port ended up at a record high on Friday. I’m up 41% this year so far, and, for that, I am deeply grateful to Saul, and for having found this amazing board in 2017. Secondly, I almost choked on my coffee this morning at the news that Berkshire Hathaway has bought a stake in Amazon. Didn’t see that one coming. But it bodes well for investing in Cloud and SaaS stocks.
When I first wrote about the Oomph factor* 3 weeks ago (in message #55283), I concluded that AYX and TTD were the most attractive buys based on their lower EVSO ratios. I also wrote that I would not be adding to TWLO, ZS or OKTA because they looked expensive by that same ratio. So let’s see how those decisions have panned out since my post.
Low EVSO Ratios
Symbol 3-week Return
====== =============
AYX 16.4%
TTD 12.4%
Now, I am not saying that the EVSO ratio is always going to be this great at identifying stocks with the biggest upside potential, especially within this short a time interval. But I’m encouraged by these results so far, and will continue to use this ratio to guide my trims and adds in between earnings calls.
Speaking of earnings calls, it’s time to update the Oomph table with the latest data from AYX and TWLO. I’m leaving out Square this time because I don’t have enough info to calculate its Adjusted Gross Profit Margin. It’s too complicated for me, and I don’t want to get into an argument about it. Note that I continue to hold Square, and added a bit on the recent 8% dip on Thursday.
Based on the above EV/S/O numbers, I’ve decided to trim some of my TWLO and OKTA holdings and add more to AYX and TTD.
Good luck to all,
Ron
The Oomph factor is the square of the YoY revenue growth for the most recent quarter (in multiplier form) multiplied by the Gross Profit Margin. The EVSO ratio is the Enterprise Value divided by annual sales divided by Oomph. Lower EVSO ratios are “cheaper”.
I maintain a similar spreadsheet for myself and I’ve made similar trades as you have over the past week.
One minor caution that I remind myself of is to not put too much faith into the false precision of “numbers” Having said that, OKTA is at the very top of its valuation range at a time when its growth appears to have been trending down for the last 5 quarters.
58.2%
59.2%
55.8%
56.0%
49.6%
During OKTA’s near 60% growth its max ev/s was 24 and dipped down to 18 for a while. Now OKTA is sporting an ev/s of 29. I’m excited about all the products they have announced and I think the company has an exciting future but momentum has taken hold of this one in my opinion.
I noticed you used 53% for twilio’s growth. During the TWLO CC they said TWLO growth ex sendgrid was 60%.
I maintain a similar spreadsheet for myself and I’ve made similar trades as you have over the past week.
That’s cool, Ethan, and I agree with you about Okta being precariously at the top of its valuation range. My Okta allocation had grown to 8% of my port, and I’ve trimmed it back down to 6%.
I noticed you used 53% for twilio’s growth. During the TWLO CC they said TWLO growth ex sendgrid was 60%.
In a previous post, I calculated that Twilio’s growth has slowed to around 53% because it got dragged down by Sendgrid’s 30% growth. It’s true that without Sendgrid, Twilio grew around 60%. But Sendgrid is now part of Twilio, so I have to go with the 53% number. Here’s the post where I did that growth calculation: https://discussion.fool.com/the-acquisition-of-sendgrid-has-caus…
Enjoyed your post.
Thanks, and, likewise, I enjoy the insights you offer in your posts. Keep 'em coming!
Hi rdutt, I tried doing my own EV/S/O values to see how they would come out. The only one that really differed in a major way from yours was Twilio. The way I figured, all the acquisition revenue is counted in revenue, and all those extra acquisition shares are counted in in Market Cap, and thus in enterprise value, and in EV/S, and we both used the merged gross margin, so I had to use the growth rate counting the extra revenue from the merger too. Otherwise one is cherry picking and using all the other consequences of the merger, but excluding the key one.
So to be consistent I used 81% for rate of growth, which was how much this quarter’s revenue was greater than a year ago, (that’s what the company gave as growth rate as well), so while you got Twilio as the highest EVSO value, I got it just behind Alteryx and The Trade Desk as one of the lowest and best values. [I really could have used the 88% rise for base revenue, but I thought that that would be pushing it.]
I surely wouldn’t say that my way was the only way, or right way, to do it, but it seemed the only reasonable way to me to figure it without having to make all kinds of guesses to dissect the merger (which will get harder every quarter).
This update thread was part of what prompted me to finally get around to reading the original thread, which I replied to just a bit ago.
A few further thoughts:
Since EV varies with share price, I think it would be beneficial to list a range for EV/S for a given quarter (presumably TTM sales), similarly to the way Tom Engle (TMF1000) uses ranges for a given quarter. This could better provide historic ranges (either looking into the past from today, or in the future looking backwards if only kept track of from today going forward).
I noted in the original thread that Zoom, pre-IPO, had an attractive “EVSO”, but that may have since gotten out of hand a bit. Zoom and several other companies would be nice additions to the Oomph study/studies, along with SHOP, SQ, MELI, and probably several others. I may take a stab at looking at UBNT from this angle.
volfan84
presently short a ZM call spread, to fully disclose that tidbit
long MELI & UBNT
no SQ or SHOP position at present