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?
Thanks,
Mark
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.”
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Just by the law of large numbers revenue growth numbers will eventually decelerate, yet some stocks keep on rising for other factors. Perhaps widening margins as you mentioned. AAPL has not shown much if any unit growth in phone for the last 3-4 years yet ASPs have risen, and yet just recently became the 1st trillion dollar market cap company.
Rob
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Just by the law of large numbers revenue growth numbers will eventually decelerate, yet some stocks keep on rising for other factors. Perhaps widening margins as you mentioned. AAPL has not shown much if any unit growth in phone for the last 3-4 years yet ASPs have risen, and yet just recently became the 1st trillion dollar market cap company.
Rob
On May 1,2018, AAPL closed the day at $168.50. Thirty minutes later Apple announced 2nd quarter earnings. It also stated it was buying back $100 Billion worth of their shares. (And some of that for their dividend payments, many of which reinvest in shares.)
On the announcement day Apple gapped up on its chart and hasn’t looked back.
This past Friday, Apple closed at $206.99
Thus, in one quarter, after the announcement of its massive share buyback, Apple has risen 23.44% in market value. And it’s still a positive cash cow machine.
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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?
Prodical, In my humble opinion, Yes, you are on the right track. Shop is not the cash generating machine that is Apple. Slowing growth and continual bear cases will result in multiple contraction. As an FYI over the past couple of months I have sold about 75% of my original position in SHOP. Will probably sell 1/2 of the remaining shares. It has produced great returns for me over the past two years. I will keep a small position for the eventual implications of legalized pot sales in Canada.
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