I think we get spoiled by having so many rapidly growing companies. I used to look for companies that were growing revenue by 20%, or at most 30%. In the “real world” companies don’t grow revenue by 100%, or even by 70%, for four years running, or even one year, unless they are just beginning and starting from zero. Especially revenue that will stick, that’s recurring revenue. Companies growing as fast as Shopify and Alteryx are an incredible new phenomenon, a result of the explosion of data, the internet, and artificial intelligence. - Saul (http://discussion.fool.com/i-was-hoping-the-deferred-rev-will-be…)
Thanks for the perspective, Saul. 2017 was a year so amazing that I certainly didn’t expect another soon…and you know what? I don’t think we’re getting one. In 2018 the market is up less than last year, and we are up way more. So how are we beating the S&P so flagrantly – even more flagrantly than last year? The companies we own have out-performed. It’s like you say in your summaries, Saul: The stocks I own went up! That’s the big secret. Stock picking.
When I step back and ask why our stocks are going up, it’s really as simple as what you said above. The market, I believe, is still struggling to catch up to the long term value of SaaS companies. And it’s hard to blame them. When I started looking at these companies in late 2016, their PS ratios did startle me. Now, many of those are much higher, and it’s tough to argue with that. It’s getting difficult to imagine a company like Shopify being dethroned. Square too. And Alteryx and Okta may be just getting started. I can sympathize with those who have trouble putting a number on their value!
Put differently, as I quote in my monthly summaries, from mauser96: “exponential compounded growth does not fit the analytical backward looking skill sets of most Wall street analysts”
It’s a great time to be alive, and to be and investor, and to pick stocks.
PS Square is now at a 20 billion dollar market cap and Shopify is marching toward one. These were respectively at 4B and 3B in late 2016. That’s right where Pure, Okta, Wix, Hubs, and others are now. And Alteryx, Talend, Hortonworks, Instructure, and others are actually much smaller! Opportunities are everywhere!