I’m in a situation like probably many of you on this board, very much looking forward to ZM and CRWD reporting on Tuesday. For me, ZM has grown into an oversized position (>20%), and I will be likely trimming after earnings. I regret not building up CRWD enough this past month, and it’s at 13%. But if they blow-out earnings and pop like FSLY or TWLO, I may trim that as well. I might even trim my ROKU, which is a 4% position, which I’m losing patience with. In any case, I’ll probably be shopping around for things to buy after trimming this week, and my plan is to buy things that will be reporting earnings in the next week. We have Wed (ESTC, SMAR), Thurs (DOCU, MDB, WORK, PD), and Monday (COUP). I used to own ESTC, SMAR, MDB. Currently have a 3.2% position in WORK, and and 2.1% in COUP. Never owned DOCU or PD.
Why buy only these? To be brutally honest, I’m having a bit of FOMO watching so many stocks on my watch-list, or former holdings, either run up before earnings (MDB, SHOP), or pop double-digits (NVDA, BILL), or 30% (ZS), or even 40% (FSLY, TWLO) after earnings. Even the “non-superstar” stocks such as PANW, NEWR, have shot up after earnings. And there’s not much of the opposite. Our SaaS/cloud companies aren’t really going down after earnings. The closest was AYX, which was down a little, but quickly recovered. OTKA didn’t shoot up much, but they’re up since, and ran up quite a bit before earnings.
Yes, I know that FOMO is a terrible thing to act upon. And normally, I wouldn’t even think of doing something like this, as in normal times, it’s basically gambling. Earnings are too unpredictable. It happens all the time that a company has a stellar report, fires on all cylinders, but the stock inexplicably drops 15% after-hours. HOWEVER, it seems like in the last month, the strong cloud stocks have at worst stayed flat, or at best shot up when they reported earnings. Sure, there’s risk. Maybe you still think it’s gambling. But for me, being in my 30s, the reward outweighs it. Also, I’m not picking random stocks. All of these are discussed on this board, and I would feel comfortable owning anyways, as single-digit positions.
So, assuming that I do trim Wednesday morning, I’ve got decisions to make about what to buy. I’m well aware that “what should I buy?” posts aren’t appropriate for this board. Also forbidden is “turn-around investing”. Though one may interpret this post as having elements of either or both of these, that’s not my intention. Instead, I’m envisioning this thread to be like two fantastic threads from last summer, which were crowdsourcing efforts to pick the best of the best. Remember Bear’s “Focusing on what we’re good at” (https://discussion.fool.com/focusing-on-what-we39re-good-at-3424…), and Ethan’s “High/Low” (https://discussion.fool.com/highlow-34251485.aspx?sort=whole#342…), which was also going into earnings season. Same thing here, but there’s a really good chance that several of these stocks will shoot up double-digits, and +20% wouldn’t surprise me either. Let’s put our heads together and figure out what’s gonna do the best. Not necessarily within 24 hours of reporting, but at least over the next few months. Once again, in “normal times”, just the idea of certain elements of this post would be absurd. But as a very wise man once said, “Yes, this time IS different!”. And I’m certain that other people on this board are thinking some of the same thoughts that I just expressed.
Below is a list of the stocks I mentioned above, ordered by reporting date. I’ve included the P/S ratios from Ycharts, and the link, for easy click-access so you can see the trends over time. With each company, I’ve tried to include some Pros and Cons. Much like Ethan’s “High/Low” post last July. However, I don’t follow most of these stocks as closely as many of you do, because I only own two of them, both small positions. So my knowledge is basically from reading everything on this board. So please feel free to add your own thoughts, and tell me where I’ve gone wrong, or what I’m missing.
Okay, let’s get started:
ESTC: (Wed 6/3). P/S ratio is 17.6. (https://ycharts.com/companies/ESTC/ps_ratio)
Pros: Still below ATH of $104, good valuation. Easily the cheapest here other than PD. Only a 7B market cap. P/S ratio is much below it’s high of 25 last year.
Cons: Already up 43% in the past month. Could this be more of an “OKTA” (run-up before earnings) than a FSLY/TWLO (earnings kick-started the run-up).
SMAR (Wed 6/3). P/S ratio is 24.5. (https://ycharts.com/companies/SMAR/ps_ratio)
Pros: Still only a 7B market cap. Is only up 15% in the past month, which is less than most on this list. Could this be “lying low”, like FSLY or TWLO, and poised for a jump?
Cons: Not our highest conviction stock. Should have WFH tailwinds, but might be more delayed [I love BobbyBe’s analogy of how ZM and DDOG are like ropes & boards during a hurricane, but AYX is like the brooms and shovels: [https://discussion.fool.com/there-were-doubts-on-alteryx39s-shor…](https://discussion.fool.com/there-were-doubts-on-alteryx39s-short-term-34497200.aspx) ]. Seems like the P/S is on the high side, but it’s still lower than the 29 that it was last year.
DOCU (Thurs 6/4). P/S ratio is 27.3 (https://ycharts.com/companies/DOCU/ps_ratio)
Pros: Aside from ZM, this might have the strongest WFH tailwinds, in terms of a change in how things are done. And of the ropes & boards flavor. Seems like (to me) this should have a higher P/S than SMAR.
Cons: Already a 27B company, and up 166% in the last year. How much more room does it have to grow? Last summer, the P/S ratio was under 10.
MDB (Thurs 6/4). P/S ratio is 31.2. (https://ycharts.com/companies/MDB/ps_ratio)
Pros: Strong company. Many of its SaaS peers have shot up after earnings.
Cons: Already up 50% in the past month. Seems more like an OKTA-style run-up before earnings than a TWLO or FSLY, where earnings kick-started the gains. But perhaps that’s just based on timing of when they reported. The P/S ratio is at an ATH, even above what it was last year when it out of nowhere, shot up to $184 before languishing in the low $100s for a while.
WORK (Thurs 6/4). P/S ratio is 28.9. (https://ycharts.com/companies/WORK/ps_ratio)
Pros: Still below its ATH of $42 last year, and much lower than its peak P/S ratio of 44.6.
Cons: Already a 20B company. Not clear how many non-tech people are using it, or how it’s usage has increased due to WFH, so the COVID tailwind might not be as strong as other, or at least will be delayed a few quarters.
PD (Thurs 6/4). P/S ratio is 11.1. (https://ycharts.com/companies/PD/ps_ratio)
Pros: Less than half of its ATH of $59.82. Still only a 2.23B market cap. Seems like something that could get a strong WFH tailwind, like DDOG. Much below its P/S ratio of 29 last year. Seems like the riskiest, but also might have the largest potential upside.
Cons: Not as high of a conviction as most of our companies, slower growth. Already +40% over the past month. It’s not one that I would be considering if it wasn’t reporting for earnings this week, in this unique environment. I don’t really understand enough of how this works, especially compared to DDOG, to speculate about tailwind. Being half if its ATH is also a big red flag. This is the least discussed on this board, but here’s a recent thread: https://discussion.fool.com/why-i39m-passing-on-pager-duty-pd-34…
COUP (Mon 6/8). P/S ratio is 37.84. (https://ycharts.com/companies/COUP/ps_ratio)
Pros: Strong company, high growth, and many of its peers have shot up after earnings.
Cons: Already up 36% in the last month. Its tailwinds might be more delayed (brooms & shovels), like AYX rather than immediate (TWLO, OKTA, FSLY). The P/S ratio is much higher than the 30 that it peaked at pre-COVID.
Before starting this message, I wasn’t sure how I’d rank these. The act of writing it actually helped clarify things for me. I’m thinking about the following rankings, for what I’d rather own over the next few months, and maybe longer, buying before earnings:
ESTC > DOCU > PD > WORK > SMAR > COUP > MDB.
Again, I don’t follow most of these companies that closely, but I know that some of you do, so please take this ranking with a grain of salt, and don’t let it bias yours. I’d love to hear any thoughts.
Long, in order of size: ZM, AYX, CRWD, DDOG, LVGO, TTD, TDOC, OKTA, ROKU, WORK, SE, COUP, FSLY.