OT: Which is a reliable stock screener

Sorry, this is a stupid question…but from my very limited time in the market, it is obvious that I may have been much better off asking stupid questions and then investing, rather than assuming things and investing stupidly.

Which stock screener is reliable?

I normally look at yahoo finance…and today, I was shocked to see some metrics which seemed so different to what was there in January this year, at least in one of the stocks.

This is regarding SHOPIFY (Yes, another one of my stocks that I bought last year as Motely fool rated it very highly, an dis deep under water).

On Feb 3rd 2022, it had a price of 900, and it’s P/E was reported to be 34.

Now, it’s price is 363, and it has a P/E of 293!

I just do not understand how that is possible. It’s price has dropped by 58% since Feb 2022…Has its earning dropped so dramatically such that even after the price dropping so much, the P/E managed to rise from 34 to 293?

Interestingly, I seem to vaguely remember that even during that time in Feb 2022, someone mentioned that its adjusted P/E was 98 or so, but I was not sure how they managed to find that, as yahoo finance positively stated only 34!

So, what stock screeners are better suited/ more reliable?

Thanks so much,
Charlie

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This is regarding SHOPIFY … what stock screeners are better suited/ more reliable?

I don’t use stock screeners for a company’s financial figures. I go right to the company’s investor relations Website and read the quarterly report. In the case of Shopify, the Yahoo Finance figure that showed Shopify’s P/E at 34 back in Feb this year is correct, and is based off the Q4 2021 earnings report at

https://s27.q4cdn.com/572064924/files/doc_financials/2021/q4…

According to that report, Shopify earned over $2.9 billion in net income in 2021, which was equivalent to almost $22 per share. SHOP did trade at around $748 in mid-Feb. Divide $748 by $22, and you get a trailing P/E ratio of 34.

So why does Yahoo say that the P/E now is 251? The answer is in Shopify’s latest Q1 2022 earnings report. The explanation is that there was a net loss of $1.5 billion, or $11.70 per share, for the first quarter of 2021. That huge net loss was primarily due to $1.6 billion of net unrealized and realized losses on their equity and other investments.

So they incurred mark-to-market losses on their investments (not on their operation spend), and that was what reduced their trailing 12 month net income. This is similar to the mark-to-market loss that Amazon had to take recently due to the lower value of the shares of their investment in Rivian.

Shopify’s balance sheet and operating income shows that it’s a very healthy company. They have $7.25 billion of cash on hand, and had $32 million of operating income in the most recent quarter.

Shopify is the #1 provider of eCommerce services to the retail industry, and has a pretty big, fortress-like moat. The market opportunity here is over $150 billion, and Shopify has captured only 3% of that TAM. So it’s still very early days. Zoom out. If you don’t need the money now, hold on to your shares, stop stressing and live life. Check back with investments like these in 3 to 5 years.

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Thanks so much rdutt. That was very helpful.

Charlie

Moat (lasting competitive advantages, this is the most difficult for investors to learn) and margin of safety (price at least 20-30% cheaper than conservative intrinsic value estimates, normally hard to find except in severe bear market) are probably more important than any other considerations.

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Just to add to what rdutt said, note that Shopify’s business is doing well, but it’s extremely expensive, at something like 100 times recurrent earnings from its operations, maybe more.

The thing that has distorted these numbers is that, just like for Berkshire, generally accepted accounting practices (GAAP) now require companies to report any change in the value of share holdings as income, every quarter. This means that GAAP earnings are now much more volatile. For instance, Berkshire makes about $30b in earnings every year, or $7b per quarter, but if Apple shares go up by $20 in a quarter, that’s about $15b after tax for Berkshire; if those Apple shares drop by $20 the next quarter, that means $15b in net income losses for Berkshire. In a given quarter, the fluctuations in share values overwhelms the core earnings that are the major source of value. It’s a new convention that is major source of confusion, and Buffett hates it, but there’s no avoiding it.

In Shopify’s case, their big Apple-like position is Affirm (AFRM), in whom they have a 20 million share position (acquired at 1c/share!) as the result of a deal made in 2020 (before Affirm’s IPO) where Shopify agreed to exclusively use Affirm for financing for Shop Pay. That stake was worth $2b at the end of 2021, with Affirm shares trading at about $100, representing a $1.3b unrealized gain. That made Shopify’s P/E ratio look quite low, as you observed, but obviously, Shopify can’t count on repeating that trick every year.

Not only can they not repeat the gain, but also, unfortunately for Shopify, most of that unrealized gain has evaporated already, with Affirm shares now trading at a more reasonable $22. That means that Shopify’s earnings will undoubtedly go negative for 2022, unless there is a dramatic increase in Affirm’s share price.

So neither was Shopify’s earning power so great in 2021, neither is it so bad now. To illustrate, last year’s income from operations was $269m, overshadowed by the ‘other income´ (largely AFRM gains) which were $2872m.

Better to ignore the almost meaningless fluctuations in the value of the AFRM stake, and to focus on revenue growth (which is slowing) and the income from operations (which was actually negative in 2022Q1), 2 reasons that probably explain why the shares are down so much.)

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margin of safety (price at least 20-30% cheaper than conservative intrinsic value estimates

Is this correct? I need to re-read seth klarman’s book.

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<margin of safety (price at least 20-30% cheaper than conservative intrinsic value estimates

Is this correct? I need to re-read seth klarman’s book.>

IV estimate is about future earning power (10 or more years horizon), which directly depends Moat. Since I can never be very certain about the moat of a business, I prefer deep discount to IV estimate.

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