It’s tough when my day job gets in the way of keeping up with all the Motley Fool boards… but, it pays the bills…
Thus, I spent a good part of today reading 200 posts from this board dating back to July 31… ancient history!! But it was an interesting read watching folks reactions to a volatile week… reading the before earnings hopes and the after earnings reality… the bull and the bear point of views.
After all of that… one question…
The question to me on SHOP does not seem to be whether or not SHOP is a great company… it is a great company. The question isn’t whether or not 50% growth isn’t great. It is.
To me, after all the reading… the question seems to be “What premium multiple will the market give to a company whose growth rates are slowing?” Seems to me that ALL of our “Saul Stocks” have the share prices they do because of the premium multiple afforded them because of their accelerating growth rates. As soon as that growth rate decelerates, it seems that premium multiple is reduced… and the share price either goes sideways (ANET trapped in the 250-280 range)… or drops.
So for all the discussion… of the merits/demerits of SHOP… isn’t the bottom line that “we believe that deceleration of growth rates will result in lower multiples being afforded the stock and therefore, we’d expect share price stagnation or decline.” Isn’t that the final thesis??
Please correct me if I got it wrong… I word it the way I word it because that’s a “lesson” that I can apply to future situations.
If my thesis is correct… sure, SHOP revenues will continue to grow… but the share price won’t necessarily appreciate with that growth because lower multiples will dampen price reaction to that growth.
Am I on the right track?
PS I also considered that following as the thesis… “we believe that deceleration of growth rates and reduction in margins will result in lower multiples being afforded the stock and therefore, we’d expect share price stagnation or decline.”