OT: When comes the time to play "vulture&qu

…and to feed on the remains of SaaS stocks?

Back to my subject line: The IT guy in me is intrigued by SaaS companies and I find the concept convincing. But I don’t know how to value them. How to get even a rough idea of when their prices might be low enough that buying might make sense in the sense of investing instead of speculating?

Apart from that a personal comment which I can’t make over there as it would be removed. I really, really pity this guy:

I’ve lost practically all of my life savings…

It’s heartbreaking to read this. And there are probably not hundreds but thousands like him over there, silent, not posting, knowing their posts would be removed. The sad part for me is that contrary to Saul and his officers who know what they are doing the really hard hit ones are the others, the naive ones who do NOT know what they are doing. As so often in life it crushes the weakest (THE big problem of capitalism), the ones least able to stand it.

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“I’ve lost practically all of my life savings…”

It’s heartbreaking to read this. And there are probably not hundreds but thousands like him over there, silent, not posting, knowing their posts would be removed. The sad part for me is that contrary to Saul and his officers who know what they are doing the really hard hit ones are the others, the naive ones who do NOT know what they are doing. As so often in life it crushes the weakest (THE big problem of capitalism), the ones least able to stand it.

I tried to engage the SAUL Board in a discussion of valuation back in November when the stocks were peaking. All those efforts were deleted and I was labeled a “troll”. I started investing during the dot com boom of the late 1990’s, and spent time on the CSCO board and the boards of other high fliers. Occasionally a Berkshire board poster would wander over and give a lesson on value investing. It led me to read the Intelligent Investor, and to sell out of the dot com stocks and buy berkshire instead. Those trolls saved me from huge capital losses.

What is particularly problematic about the Saul board is the active suppression of thought. It really is a cult operated by a guru. I can’t see how, or why, the Fool would agree to support and enforce the suppression of critical thinking on the board, especially when so many potential customers are finding themselves ruined by the slavish adherence to his “investment philosophy”. At this point they are simply repeating by rote his unsubstantiated claims that the price declines “of our great companies” are overdone simply because they have declined so far already. There is no attempt to wrestle with questions of value, or to estimate relatively safe entry prices, because the conversation is forbidden. Instead newbies are left to cross themselves, grab the prayer beads, and hope the guru leads them to the promised land.

Knowledge is power. Anyone who would deny people access to knowledge has to have their motivations questioned.

PP

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Where is that highly respected poster who can watch F1 for free from his balcony***?

Seriously, how to value SaaS stocks? How would you value those currently(!) super-fast (revenue and customers) growing companies, Jim? How to even roughly estimate when it will unavoidably slow down from “Hyper” to “Fast” like Amazon/Google etc.? Could Salesforce be a useful example as this SaaS company already is around since quite some years? How to even get an idea about their future revenue or dare I say it: Earnings? And how much to pay for it?

While it’s forbidden to talk about valuation of SaaS companies over there, on the “appropriate” board, luckily we are a tolerant bunch and free to talk about this here.

***What about inviting your closest friends from this board over to your balcony for the next F1 race? Great way to make friends. You wouldn’t be able to count them :slight_smile:

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Seriously, how to value SaaS stocks? How would you value those currently(!) super-fast (revenue
and customers) growing companies, Jim? How to even roughly estimate when it will unavoidably slow
down from “Hyper” to “Fast” like Amazon/Google etc.?

There are two approaches that seem to work.

(1)
If the firm is, in your view, sufficiently predictable…
Then it’s pretty surely worth 12 times the average EPS 5-10 years from now.
At under 10, you’ll almost certainly do nicely.

(2)
If it’s not predictable, then look for an opportunity that meets the “Dhandho” test:
Don’t worry at whit about whether it’s predictable or not. But enter in a way that gets you “Head you win, tails you don’t lose much”.
Concentrate on ways to hold a position that don’t involve a big downside.
How to do that?
Security selection when things REALLY get cheap, use of derivatives, small uncorrelated position sizes.

Or simply fishing where there are more fish and it’s all easier. That’s my approach.

Jim

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Jim’s number 1 is where I’ve spent the last 47 years. Keeps me sane and stable…except for a tad of cynicism.

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I saw the reception you received on that board. I was reminded of my grandson who had to stick a metal fork in a light socket to learn his lesson.

Sometimes warnings are useless.

My light socket was internet stocks 1998-2000.

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I bought Biomedical Reference Labs in the 1970’s as the “send blood to be tested” them got wings. Wasn’t long till I had 20 times my money and was the industry expert.

Along comes International Clinical Labs and I bought that one too.

In the end I lost money on the combo as the failed concept of sure-to-be-huge-profits turned into too-much-competition.

SAAS is nothing new.

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The IT guy in me is intrigued by SaaS companies

We are not there. When average investor gets nightmares on hearing SaaS, is when you want to buy. We may get there. We are just one week from Fed raising rates.

So your cash may earn something :slight_smile:

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The positive posts on Berkshire were sometimes getting very low double digit “likes”. The euphoric posts on SAAS were getting 500 “likes”.

Momentum does push stock prices but it isn’t forever. The SAAS post that I posted here, the Oct 29, 2021 one, just stuck in mind as probably the most arrogant one I have ever read. The likes were legendary.

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Perhaps the bottom is reached whem Saul’s board is quoting WEB. A few posts down from the poor soul who lost most of his savings: "This thread should end quickly, because price is not value. I am feeling the pain along with everyone else, and rest assured that Saul is feeling it more than most if not all of us.

The market can be irrational for very long periods (and it seems longer when we’re losing, psychologically speaking). But as Warren Buffett says, “In the short term, the market is a voting mechanism, but in the long term, it’s a weighing mechanism.”

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At this point they are simply repeating by rote his unsubstantiated claims that the price declines “of our great companies” are overdone simply because they have declined so far already. There is no attempt to wrestle with questions of value, or to estimate relatively safe entry prices, because the conversation is forbidden. Instead newbies are left to cross themselves, grab the prayer beads, and hope the guru leads them to the promised land.

I wonder if the decline might be mostly over?

After the peak in the NASDAQ in March 2000, that index dropped about 2/3, from about 5100 to 1700.

Look at some of these that are widely held on Saul’s board:

Croudstrike (CRWD) down 28%
Datadog (DDOG) down 34%
Zscaler (ZS) down 45%
Snowflake (SNOW) down 58%
Upstart (UPST) down 60%
Cloudflare (NET) down 60%
Zoom (ZM) down 63%
Monday (MNDY) down 68%
Datadog (DDOG) down 70%.

Of course, if these stocks were even more highly priced than the tech stocks in 2000, then how far they have come down doesn’t tell us how much farther they might have to go. But to me, the prices for some of these high-growth companies don’t seem too crazy any more.

To take one example, Upstart now has a market cap of under $9b, 10x revenues and about 50x last year’s GAAP earnings, for a company that had revenue growth of over 200% last year. For the sake of comparison, Costco (COST) is at 44x last year’s earnings, and is growing at about 15%. Snowflake is at 50x revenues, no profits yet, but they too are growing at over 70% a year, and it won’t take a lot of growth for their price to be at 30-40x earnings as well.

It’s not our cup of tea, since the valuation depends on that blistering pace of growth to be maintained for a few years, and we here on this board like our one bird in hand rather than all those birds in the bush that we are not sure we are going to catch. But the price is at least in the right general ballpark now, so any new investor listening to Saul and buying these stocks at today’s prices might do fine. The people that we should feel sorry for are the ones who just heard of Saul late last year…

Regards, DTB

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To take one example, Upstart

There are many companies that experienced north of 50% decline, not losing money (some are even profitable), have tons of cash, and growing, but now people are scared to touch them.

For ex: META, sometime back everyone wanted WEB to buy it, now no one. What changed? price declined.

Nothing like price to change investor sentiment.

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@FoolishPhilip

If you read the database or searched through previous posts, you would know that Saul doesn’t look at Valuation for SaaS stocks. He’s explained it many times why he thinks traditional P/S has nothing to do with SaaS stocks.

I think it’s pretty silly for you to talk nonsense on another board or post false information on P/S today on Saul’s board.

Some folks on Saul’s board do look at valuation more closely (for example, Bear) and discuss it in their monthly write-ups.

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the prices for some of these high-growth companies don’t seem too crazy any more. To take one example, Upstart

DTB, thank you. At least one here who tries to get to grips on those companies.

Interesting: That the one company you pick as an example of a maybe more reasonable valuation is the company most out of favour over there (since Q3’s fraud concerns), the company which although everybody agrees that the earnings report from 15th Feb was great only a tiny minority owns anymore.

The hyper growth stocks discussed on that board aren’t the story for me, I have a family member who introduced us to EMC back in the early 1990’s and he and his siblings and children made 100 times their money within 6 years with that stock. But they all bought EMC at a beginning price of under 20 times earnings, earnings that then grew 35-50% a year for those 6 years as the PE went to 200.

Let’s call it “Reverse Saul’s investing 101.”

Several things intrigue me with that board. First is the dismissal of valuation; second is Saul literally kicking posters off the board who want to discuss valuation; thire is Saul’s 1000% gain
just recently claims of his personal performance given the stocks he churns performance is so dismal. I am always surprise that those who very likely excel in math…can’t use basic math in their daily lives to both check reality and understand probability.

There are already horror stories on the board from those who now feel stuck in the cult. These things are both tragic and entertaining to watch.

I watch the crypto groups here. The progression now is that several locals are renting large spaces and mining crypto. They are THE talk of the town!

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That said…

It is time for a (probably temporary) HUGE wild-ass jolt upwards of the SAAS stocks!

Everyone should also remember (because you do know this) that random intermittent outcomes are the most successful suck-in’s of all. If you look at the SAAS board and go back to 2014 what you will see is very pridictable. There is a bunch of complete disaster stocks…

…along with (of course) Tesla!

Several things intrigue me with that board. First is the dismissal of valuation; second is Saul literally kicking posters off the board who want to discuss valuation; there is Saul’s 1000% gain
just recently claims of his personal performance given the stocks he churns performance is so dismal. I am always surprise that those who very likely excel in math…can’t use basic math in their daily lives to both check reality and understand probability.

All of my attempts to inject valuation in the discussions have been deleted. I recently pointed out that Saul has some very attractive entry points on stocks like DDOG, which produce a very different perspective on the crushing price declines than an acolyte who bought in November would have. Frankly, his bellicose posts about fantastical gains seem desperate to me. Combine that with a Putinesque need to censor any uncomfortable conversations about valuation and you have a very alarming pattern emerging.

The desperate need to keep value discussions off the board is rooted, I believe, in his recognition that what he is offering is a growth momentum strategy. This strategy involves speculating on young, and quickly growing, companies early in their enthusiasm cycle. Price and value shouldn’t matter. All that matters is getting in early enough to ride the enthusiasm wave through several quarters of hyper growth. This works well in a secular bull market, but what we are seeing now is the limits of momentum investing in a bear market. Saul is repeatedly saying “I’ve seen this before and weathered the storms”, but this has only been true in a long secular bull market. What happens if this is the start of a bear reversion to the mean? Profits and valuing future earning streams take on greater importance in bear markets as investors turn towards the preservation of wealth rather than the speculative pursuit of soaring returns.

What he is doing on that board is frankly unethical. The censorship prevents the conversation that many of his followers need to encounter: how do you value profitless fast growing companies? Determining at least a rough approximation of that value would help identify an entry price that allows for at least some minimal risk calculation. It pains me to see people posting about losing half their wealth, or mortgaging their house to buy these “clearly undervalued” enterprises, all while their prophet of profit silences critical thinking while through glitter in front of their eyes. It’s disgusting behavior … and from a psychologist no less. The tide is retreating and Saul and his acolytes are standing naked. Let’s hope it’s not a sign of an approaching tsunami.

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Croudstrike (CRWD) down 28%
Datadog (DDOG) down 34%
Zscaler (ZS) down 45%
Snowflake (SNOW) down 58%
Upstart (UPST) down 60%
Cloudflare (NET) down 60%
Zoom (ZM) down 63%
Monday (MNDY) down 68%
Datadog (DDOG) down 70%.

Of course, if these stocks were even more highly priced than the tech stocks in 2000, then how far they have come down doesn’t tell us how much farther they might have to go. But to me, the prices for some of these high-growth companies don’t seem too crazy any more.

To take one example, Upstart now has a market cap of under $9b, 10x revenues and about 50x last year’s GAAP earnings, for a company that had revenue growth of over 200% last year. For the sake of comparison, Costco (COST) is at 44x last year’s earnings, and is growing at about 15%. Snowflake is at 50x revenues, no profits yet, but they too are growing at over 70% a year, and it won’t take a lot of growth for their price to be at 30-40x earnings as well.

The prices are better now, for sure. But this is still anchoring. If something was 50x revenue and fell to 10x, is it a good value? It was all a popularity contest. There are other companies also at 10x but never reached 50x or 30x P/S. Are they any worse?

Because you cannot draw any lessons from irrational exuberance, it is best to completely ignore past price movements. Sounds easy, especially if you say it quickly. Nobody in TMF world, I bet, is actually rational enough to do it.

How is CostCo’s position in food retailing comparable to any SaaS company’s competitiveness? AFAIK Sam’s Club or BJ’s are CostCo’s competitors and like Apple vs Samsung, behind it in execution.

I am not knocking your valuation approach. If UPST manages to grow revenue at 100% CAGR they will be a 12.5 P/E in two years (at today’s price). A value stock! I am just drawing your attention to the irrelevance of past price movements.

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I’ve never heard such nonsense in my Life, comparing Saul to Putin. The Motley Fool loves Saul’s board and Tom Gardner himself reads it and posts every once in a while. Others like Brian Stoffel also post as well. If you can’t recognize the value of Saul’s board, you don’t know much about investing.

Motley Fool has been trying to educate people for years on how to value and evaluate SaaS stocks, apparently the folks on this thread have missed it.

https://www.fool.com/investing/2018/08/23/how-to-invest-in-s…

Some common ways besides P/S or forward P/S are the rule of 40, DBNRR, ARR, RPO, etc

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