Also Saul I am just wondering as you discuss building your portfolio, if you see any of your current stocks as being relatively cheap and where you are putting new money. I love SHOP but am worried that it is a little overextended right now although I think in time to come I will laugh at that statement as it charges upwards. TWLO is close to its lows and seems to be building a base - perhaps TWLO, Likewise with HDP. PAYC also a little over extended. So many great companies and so hard to choose.
Hi CraigDoc, Interesting question. Here’s how I see it, but it’s just impressions as I really have no inside knowledge in these areas.
Amazon - Certainly not cheap. Seems to be constantly growing in value. Taking over world of retail. AWS seems to be getting some competition from Microsoft. When will it stop finding new things to invest in and start making money. Possible political risks?
Arista - Growing revenue and EPS at 35%, but not cheap (PE is 37). Still battling in the courts with Cisco, but will probably keep growing and taking market share whatever Cisco does. I don’t know about possible future technological threats. Very smart management and very good company.
Bofi - Was cheap six months ago at $16. At $29, not so cheap. Legal issues not over but seem to have faded in importance. Now, just a good, apparently well-functioning bank, but with EPS growth and growth of tangible book value both slowing considerably as it becomes larger. PE of 15. Just on the border of cheap, maybe.
Hortonworks - Cheap? No way? Maybe cheap in that it’s down 65% from its high, and it’s certainly bounced off its bottom and is on its way up, and revenue was up 51% last year, and billings were up 63%, and deferred revenue was up 72%, and they reached Adj EBITDA breakeven, but they are still losing money, and while they are in a rapidly growing field, I don’t have a clue about technological challengers.
Kite - How does one evaluate cheap or expensive for a company like this, which has the first in a class of drugs which is likely to totally disrupt the whole treatment of cancer. On the other hand its up 79% already in the seven weeks I’ve had my little position, on news which was totally expected (by me anyway), based on their past results. This was no big surprise! Why the big move. The shorts were hoping for some bad result to bail them out and they finally abandoned ship and covered. When Kite gets FDA approval the price may rise again, but when reality sets in and they start to get evaluated as a real company instead of an exciting story, and losses continue for the foreseeable future (at least a year or two) the price may come back to earth for a while. I’m totally satisfied and holding my small position, but cheap??? No way!
LGI Homes - Yes! Cheap! In the sweet spot in a market where they can sell all they can build as fast as they build it. (Remember though that there is no recurring income). Revenue was up 33% last year and earnings per share were up 36%. And they are at a PE of 9.5! This one is Cheap!
PayCom - How do you measure cheap here? Revenue was up 50% in 2015, and 46.5% in 2016, and it’s probably just about all recurring. But people are aware of this and it has a PE in the 60’s. Not at all wildly over-extended, but not really what I’d call cheap either. Good company.
Shopify - What is cheap and what is expensive for a company that’s grew REVENUE at 90% last year? And it’s almost all recurring as I see it. (Granted in a recession or depression some of its clients will go broke and their customers will buy less, but that doesn’t make it non-recurring to me. If you sell a TV set today, tomorrow you have to go out and sell another one to someone else. THAT’S NON-recurring!). This is a truly booming company, but NOT cheap.
Splunk - This one is making money! And adjusted earnings were up over 100% off a small base. And revenue was up 38% last year. And cash flow is positive and growing. Existing customers spend more each year. It’s all rapidly growing and recurrent. I love it. But cheap. Nah! Not with a PE of 150.
Square - Adj EBITDA has been positive and growing for three quarters. Losses are shrinking. Revenue was up 42% last year. All recurring the way I think about it. But they are in a crowded field and don’t have much moat except ease of use and integration, and very smart management. Good company, but not really cheap until they start making some money.
Talend - This one may qualify, just on the basis that revenue growth is accelerating, losses are coming down, revenue is recurring, and it hasn’t been discovered and bid up yet. Here is the year-over-year growth percentage of revenue for the past eight quarters: 15% 19% 22% 28% 34% 38% 40% 45%… Now that is pretty amazing!!! Revenue growth percents usually come down as the company gets larger. - Illiquid stock. Be careful.
Twilio - They surprised themselves and broke even last quarter. Losses are falling, revenue was up 66% for the year. There are people who feel this company will be replaced by other technologies or open source, and others who really love it. I’m just sticking with the growth trend.
Ubiquiti - Yes! Probably cheap! Earnings up 37% last fiscal year. PE of 17. CEO has taken over running the company in a serious way. They have a fanatically loyal community of users and customers. Expanding now into enterprise. Only danger (and a real one) is that they make tech hardware, not software. They have overcome some of the dangers by having a very numerous and diverse worldwide community of customers and they sell products at a third of what Cisco sells the same products for. That removes the danger that they will become commoditized. They can do this because they don’t have much sales expense with their community who evangelize for them, and thus have great margins even as they sell for much lower prices.
I hope this is of help.