Thanks Jeff, truly amazing stuff there. Saul’s sufferers would benefit from reading that!
1 Like
@Jeff,
I am really interested how to value SaaS stocks, so thanks for the link but with respect to
…how to value and evaluate SaaS stocks…
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.
this article only explains what RRR or DBNR actually IS. This surely is helpful when it comes to comparing SaaS companies but it doesn’t provide any clue with respect to the hard question: How many $ a company with this or that specific metrics is worth. And isn’t that the very definition of “valuing”?
Regarding
I’ve never heard such nonsense in my Life, comparing Saul to Putin.
PP did only point out the commonality in censoring. If I can make my own personal comment: Saul & the Cowboy (jonwayne) for my taste both love a bit too much to call people “idiot trolls”.
Supposed “Idiot” in English has the same extremely insulting meaning as in my native German (and I suppose it does) their love for that term gives an interesting insight of their inside. Highly unlikely that they are the kind of people I’d like to have a beer with.
10 Likes
The closest thing to Theranos in the investing world I’ve seen. “Come invest with us, my (our) results are incredible…but you can’t see the inside of the lab (or get your money back).”
1 Like
Have you guys read the knowledge base? The board is not for those new to investing. And yes, it has rules, so the board tries to stay on topic. The typic is hypergrowth stocks, everything else is off topic, that is why off topic posts are deleted.
I’m not sure about the victims, what victims? Some folks got scared because they had never been through a draw down? That’s not victimhood, that’s learning. I’m sure Motely Fool has lots of victims who didn’t listen to the advice that the Fool preaches. It’s investing, we’re all responsible for our own decisions at the end of the day.
Saul always says not to follow him blindly. It just happens to be the best place I’m aware of to discuss hypergrowth stocks. That’s why there are over 80K posts and growing.
He’s created this amazing board, which I feel so grateful to be a part of. I’ve been invested in the stock market since 1995. Theranos? Putin? Stop the bitterness and focus on something positive. I’ll definitely never come back to this board.
I’ve generally found all the regulars on Saul’s board to be very nice folks and I’ve never received a bad word from anyone. They don’t tolerate off topic posts, which is essential for keeping the board going. The topic is hypergrowth stocks, not baby talk, or explain the basics of investing.
20 Likes
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.
This is true, and I said as much in my post: “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 I think it’s fair to compare Upstart to Costco - they have similar price-to-earnings ratios, and one is growing like a weed, probably doubling this year, while the other is growing slowly. In fact, if Upstart has just one more quarter of the growth rate it had last quarter, today’s price would be a smaller multiple of earnings than Costco’s.
Costco certainly seems less likely to disappear, it is true. But when a profitable company with very strong growth is priced at only slightly higher multiples than a retailer with little growth, I think it is safe to say that the 60% drop in Upstart’s price has brought it into a ‘zone of reasonableness’, as some investor once said.
dtb
3 Likes
It was my impression from reading the posts on Saul’s (retired with lots of time) that Upstart was by far the stock most sold and the least liked currently. When the price plummets do these stocks automatically fall from the hyper-growth screening?
2 Likes
The topic is hypergrowth stocks, everything else is off topic, that is why off topic posts are deleted.
That’s perfectly reasonable.
High growth metrics in the businesses aren’t used to predict future value, just criteria to help the win rate of a momentum strategy.
Value, valuation, and value metrics are simply not intrinsically a part strategy based primarily on momentum.
Nor do they need to be…there is no intent to hold long enough for the weighing machine to matter.
It might well be true that lots of those picks are overvalued in the sense that their prices will be very much lower five years from now.
But presumably the practitioners don’t know or care, as they won’t hold that long. In that context, the value of the securities truly is irrelevant.
Momentum works surprisingly well. It’s difficult to execute well, but it works on average over time.
And yes, famously, it has stretches that it works very well and stretches that it works very badly.
There is no need for anyone here to think that the approach they use “over there” is wrong or misguided.
It is what it is. All power to them.
Jim
38 Likes
When the price plummets do these stocks automatically fall from the hyper-growth screening?
I don’t know how they decide which stocks to buy, and there is no centralized decision either, just probably a lot of people copying the most regular posters. But I do know that when they say they want hyper-growth stocks, what they mean is, stocks in companies with very high revenue growth rates. In addition, they want high operating margins, so that as they grow, increasingly large proportions of their revenue will end up dropping to the bottom line. And they like SaaS (software as a service) stocks, because their sales tend to be sticky, and companies that purchase their services tend to increase their spending on these services as they roll them out across different activities in their companies, and these services tend to be relatively cheap in comparison with the cost and effort of changing service providers.
But a drop in the share price PER SE does not disqualify them. In fact, in this regard, what Saul says is similar to what Buffett says: ignore the price, focus on the business metrics. Whether they always manage to live up to this lofty ideal is another question…
dtb
2 Likes
It was my impression from reading the posts on Saul’s (retired with lots of time) that Upstart was by far the stock most sold and the least liked currently. When the price plummets do these stocks automatically fall from the hyper-growth screening?
I’m not sure how much of the actual selling was caused by the price drop in UPST (a lot I think), but there have been a few different reasons given for people selling them:
-
they are not a SAAS company, their business is much more reliant on consumer economic trends and so may not be as predictable and robustly growing as SAAS companies,
-
there was a scare where a poster noted that there was a significant uptick in defaults on UPST originated mortgages which called into question their edge over traditional underwriting: that one combined with brutal price drops drove a LOT of selling over there it seems, but then it was further investigated and it was determined that the difference was in the quality/acknowledged riskiness of the loan mix, offset by higher interest rates charged, so that’s just a normal part of the business, nothing to worry about.
-
lack of visibility/understandability/predictability of their business compared to SAAS leading to a lack of ability to read quarterly results as good/bad.
Ultimately, to my eye, this is the most interesting stock I’ve looked at from their board, from a value perspective. PE 63 is high, but the growth rate and the market size are compelling. I don’t have any good basis to judge how good their moat is, but from what I read it’s pretty robust. The biggest banks can probably afford to build similar AI driven underwriting tools which might catch up, but the smaller banks, credit unions, auto dealers etc … can’t, from what they say, due to cost to build and lack of large scale data to train the AI on. I’ve definitely got an eye on it and will probably buy if this bear market in it and similar stocks continues much longer.
3 Likes
High growth metrics in the businesses aren’t used to predict future value, just criteria to help the win rate of a momentum strategy… there is no intent to hold long enough for the weighing machine to matter.
I think you are right, but that goes against the common verbiage over there about how they focus on the best, fastest growing companies with the best business models in the world and don’t worry about price, instead relying on the market to recognize the value of their companies with escalating prices to match the growth of the companies. There’s been a lot of tossing around lately about the adage of the stock market being a popularity contest in the short term and a weighing machine in the long term, with them claiming the stock market is irrationally ignoring the value of their companies in this short term.
Interesting they only talk about value in that context, lol, ignoring that just maybe this is actually the weighing machine at work bringing the irrational exuberance back to earth.
10 Likes
The success of Saul’s method largely reflects the fact that technology business has been booming in the past 5-10 years. If one just concentrates on well-known and fast growing tech businesses, no particular skills are required. When recession hits, the tide could change quickly, fast-grow becomes fast outflow of capital.
2 Likes
I take back my previous message. I just read Saul’s message on 3/14 where he described his investment performance. The result is indeed very impressive.
If you can’t recognize the value of Saul’s board, you don’t know much about investing.
Oh please. Sure the board has some value, but it also has some strong negative aspects. I would be nice to see more analytical discussion and less cult like behavior.
A year ago I got rid of nearly everything, except BRK and oil companies. I had absolutely no love for any of Saul’s recommendations in that market environment. I could explain my reasoning, but it would roll off the Saul disciples and it would be preaching the choir here. It worked out well in spite of my ignorance.
6 Likes
The typic is hypergrowth stocks, everything else is off topic, that is why off topic posts are deleted.
Oh the times when NKTR were touted… It closed today at $4.48. To Saul’s credit he recognized and accepted the loss.
BTW, NKTR was never a hypergrowth stock. But I guess that’s nitpicking and besides the point.
Just keep in mind that when SAAS stocks are behaving all the posters are posting their investment records. There’s a noteworthy void in that respect, except for the board leader whose returns seem to go up exponentially as the stocks go down.
4 Likes
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!
To those of you who actually use numbers sometimes to evaluate things, this examplar disaster stock from the 2014 Saul port, TSLA, is up 20X aka 1900% since 2014. That is about 40%/year IRR for those of you that enjoy doing logarithms in your head.
This paradigm “disaster” stock seems to be more of a moral disaster in some cult than any kind of investment disaster for anyone actually using numbers. Same with the rest of Saul’s performance.
I will remember to genuflect as I exit this thread as this is obviously a very serious religious ritual going on here.
R:
3 Likes
The closest thing to Theranos in the investing world I’ve seen. “Come invest with us, my (our) results are incredible…but you can’t see the inside of the lab (or get your money back).”
Saul literally posts every month what his current port is, what its recent performance has been, a summary of his transactions and reasons in the last month. It is literally auditable, I audited about a years worth and his posts agreed with my audit to within about 1%.
Meanwhile, Theranos literally lied about the status of its blood machine developments and sold inaccurate results that were dishonestly said to being achieved by its machines.
Great comparison. Learn math. Learn critical thinking. Grow a conscience and stop enjoying lying about stuff you apparently can’t be bothered to figure out.
You know, or not. I’m sure you are providing a valuable service to the other innumerates who need to misunderstand Saul in order to enjoy their own decisions to invest more conservatively than that.
r:
9 Likes
Mungofitch gets it:
High growth metrics in the businesses aren’t used to predict future value, just criteria to help the win rate of a momentum strategy.
Value, valuation, and value metrics are simply not intrinsically a part strategy based primarily on momentum.
Nor do they need to be…there is no intent to hold long enough for the weighing machine to matter.
It might well be true that lots of those picks are overvalued in the sense that their prices will be very much lower five years from now.
But presumably the practitioners don’t know or care, as they won’t hold that long. In that context, the value of the securities truly is irrelevant.
There is a lot of truth in this, but a few points I think worth making.
The weighing machine does matter, but indirectly. Saul stocks are generally stocks with annual growth at least 50%/year on the kinds of metrics that feed a weighing machine. The value complaint against Saul is that the multiples should be lower, that the price is already too high given the metrics. The Saul hypothesis is, essentially, “yes, but these high multiples persist for years at a time, and as long as the underlying is growing at 50%/year for a few years at a time, we will tend to capture most of that growth even as the multiplier expansion and contraction makes our return lumpy.”
For Saul to work, he does have to pick stocks which will sustain high growth for a few years, and a lot of the discussion on his board is around successfully picking out those companies. Whatever the underlying relationship of price to growth metrics, the multiplier should shrink as a company grows towards a lower growth rate. So Saul won’t pick up the entire 50%/year, (he actually has averaged 29%/year for decades), but if he really is identifying the better growers he might do alright, and his record is that he does.
So here we are with a great multiple compression since November 2021 following a great multiple expansion in 2020 and most of 2021. Are the growth metrics of Saul port stocks actually down? No. So as we gyrate down to the low end of the multiple variation, what to do? Realize that 20+ years of 29%/year price IRR is a cruel hoax and that everything is awful and this is the proof we need against Saul? Or realize that whatever else is going on, Saul stocks are on sale for 30% or 40% lower multipliers than they were selling for a year ago?
It is hard enough to know how to value slow growing companies, and even harder to know how to value fast growing companies, because so much of the valuation of a fast growing company is “knowing” (somehow) when the growth will stop or slow. And this is why almost all value investors invest in slow growing companies. But the underlying return of the weighing machine must be the actual growth rates, and the Saul hypothesis is the companies growing their business faster will on average grow their price faster. And the Saul auditable result is that his ports have earned 29% a year for decades, on average.
Is it for everybody? Obviously not. Indeed if it was for everybody, it would stop working as growth stocks would be picked over by more people, and the truly good prospects that Saul relies on finding would be bid up in price to the point that the minority who do continue to dig through this rubble will have less to gain by doing so. My self-interest is actually served by more people staying away from this kind of investing so that someone with alpha like Saul can get paid for his alpha, and someone like me can follow his port while he does so.
For the record, I am now down on my overall Saul investing experience. I got in about October of 2020, rode the rocket up to more than doubling by 11/2021, and have now ridden the rocket down. Am I wiped out? No, I am about even with where I got in in 10/2020. Does this mean I am wrong about Saul? No more so than Brk spending a year at a time going nowhere proves you are wrong about BRK.
More likely, it proves that this is a much better time to get into Saul type investing than my 10/2020 entry, following as it did a year in which Saul’s port had tripled, and so was exploring new heights in its multiple expansions.
If there is anything I have learned over the years, it is that you feel like buying when your stuff has wandered randomly up, and you feel like selling when your stuff has wandered randomly down. But your feelings are exactly backwards, if there is an underlying “weighing machine” with a weight that is changing slower than price, your best returns will come from being in when the price is down, and lightening up when the price is high. Whatever else you can say about a Saul port, this seems the minimum truth: 1) multiple contractions make Saul stocks now better buys than they have been for a while, they are not evidence that the last 20+ years are a fluke and 2) whatever strategy you are pursuing, it will work better if you are in when multiples are low and take gains if at all when multiples are high.
So that’s what I think is going on. And Mungo basically gets it. And I’d be shadowing Mungo’s port instead of Saul’s if he had published his port as clearly as Saul has and it audited out to something like 29%/year like Saul’s does.
R:)
33 Likes
BenSolar re UPST:
Ultimately, to my eye, this is the most interesting stock I’ve looked at from their board, from a value perspective. PE 63 is high, but the growth rate and the market size are compelling. I don’t have any good basis to judge how good their moat is, but from what I read it’s pretty robust. The biggest banks can probably afford to build similar AI driven underwriting tools which might catch up, but the smaller banks, credit unions, auto dealers etc … can’t, from what they say, due to cost to build and lack of large scale data to train the AI on. I’ve definitely got an eye on it and will probably buy if this bear market in it and similar stocks continues much longer.
My own lack of love for Upstart, is the risk in their technology. They use AI to try to outperform existing “credit ratings” at predicting the performance of riskier borrowers. They are trying to find people with low credit ratings who will default on loans at a lower rate than the average among people with their same credit rating. They will then sell those people loans at a higher than average interest rate, but lower than what they could get based on their credit rating.
The problem with this is the problem with all data mining. They will find the people who fit that goal in the current market, but those people may regress spectacularly to their credit score predicted performance as conditions change. Upstart has been around briefly and so my fear is their AI has trained itself to be really good at 2020 and 2021, but not so good at conditions like the 2010s, 2008, 1999, etc., that credit scores have been around longer and so will be more robust in their predictions of creditworthiness.
So when Saul dumped out of UPST, I dumped out too and was not sad.
R:
2 Likes
Interesting they only talk about value in that context, lol, ignoring that just maybe this is actually the weighing machine at work bringing the irrational exuberance back to earth.
Of course it COULD be this. But since we see a 50% drop in Saul Stocks since 11/2021, it is more likely yet another psychotic deviation around the weighing machine result and not the scale getting wildly more accurate in a short period of time. And Saul’s 29%/year for 20+ years IRR also suggest this is mutiple compression to counter the crazy growth of multiples in 2020 and 2021 up to November.
1 Like