You are assuming MDB can grow at very high clip for the next 5 years, still with no share price appreciation and 20% net margin (which I highly doubt they can achieve), still you are seeing 30 PE after 5 years.
I basically agree, which is why I offered 20x revenues as a roughly right valuation. That works out to $280-$290 vs. today’s $360/share.
The problem I see is that the range of possible futures for the business in which this is a good investment all range from very good to extremely good. There are outcomes that are simply good for the business (rather than very/extremely good) but aren’t good for the investor.
For example, if this company goes on to earn $10 billion ten years from now, that would be an extremely good business outcome. It would mean the company has grown to where Oracle is today. In that scenario, with a 25 P/E, the company would be worth $250 billion, which would be more than a 10-bagger from today, at least 26% annualized for the investor.
But if this company earns only $1 billion ten years from now, on a 25% net margin, that would also be a good business outcome. It would mean the company has become highly profitable, with sales of $4 billion, compared to being highly unprofitable with only $874 million in TTM sales. That would translate to 16% annualized revenue growth over the coming decade along with a big pivot to profitability. But at that same 25 P/E, it would only be worth $25 billion, less than 20% improvement from today’s prices after the big decline, or less than 2% annualized as an investment.
So the range of possible futures are something like this:
- Extremely good business outcome, very good investing outcome
- Good business outcome, inadequate investing outcome
- Poor business outcome, permanent loss of capital
To put this in price terms, if you think option 1 is very likely, you would be very willing to pay the current price against a $21 billion market cap. The mungofitch model would say you could actually pay up to 5 times the current price and do well. (That model says you can pay, today, up to 10x the earnings that you expect 10 years from now, so if we pencil in $10 billion for those earnings, you’d value the biz today at $100 billion, or nearly 5x the current $21 billion).
But, if you want to require a higher margin of safety so that you get an acceptable return even if option 2 plays out, then you’d pay no more than $10 billion for the company, or half current prices.
Lastly, if you think option 3 is a possibility you should account for, you either avoid it completely until you have reason to believe differently, or at least, you demand a much lower price.
You might also want to discount all of the above scenarios to account for the steady dilution - it looks like shares outstanding have risen from 500 million to 650 million in three years, or about 9-10% per year.