Been traveling so apologies if this article was posted here before as only just come across this but more interested to see the Valuation Metrics produced by I believe our own poster here Tchalla in the comments section. Very informative. Thank you.
Thanks for the shout out.
The tracking document basically says to me that the market’s valuations are now looking at multiples of EV /Revs for 2019 for SAAS companies.
I used 3 different formulas for EV/Sales multiple estimates, all based on well researched articles that are linked in the chart. The fair value I have suggested for each stock is based the arithmetic mean of the 3 alternate formulas, and the high/low is based on 20+/-% of the mean result.
One interesting thing I noted was that almost all stocks tracked during the correction on Dec 2018 fell into the implied range, and it was clear when ROKU and SQ were screaming buy based on valuation.
The premium / discount column will correct itself once all the FY2018 earnings come in, eg elastic is down as 69% overvalued based on 2018 revs, but is a 70‰ grower and we are now firmly in 2019 even if they haven’t yet reported.
For some companies (Eg ROKU, ZUO, PVTL, NTNX) it is worth noting that the revs I have chosen to analyse are software/recurring revs, not the total reported.
The EV/next year Revs is probably the most relevant column from a valuation perspective.
Valuation isn’t everything and won’t tell you what to buy(I’m not Gary Alexander) but is a useful adjunct for help understanding when to buy.
Happy to clarify the methodology for any Fools here, but hopefully it is self explanatory from looking at the formulae.
There are a few charts in the sheets within the document for any one who is more visual.