Sorting by Recurring Revenue

Two criteria I look at the most (after growth and margin rates)

1. Is this company in recurring business from same customer (e.g. SHOP, SQ) or one time (with maybe occasional repeat business e.g. UBNT, LGIH). To me this makes a big difference in eventual growth and profitability. Sometimes this is hard to understand specially, in case of B2B players….Recurring revenues in multiple categories would be ultimate for me… That’s where Amazon and Shopify separate from rest of the pack in my view.

Hi Nilvest,
Recurring revenue is another great way to sort companies. In the Knowledge Base Part 1, under Evaluating a Company, I wrote: I look for recurring revenue. I LOVE recurring income and the razor and razorblade model. (By the way, if you haven’t yet read the KB, I’d suggest, as so many on the board have already done, that it’s worth reading a couple of times as its crammed full of good ideas).

If I look at my current portfolio, the stocks with mostly recurring revenue include

Shopify
Paycom
Splunk
Square
Amazon
Talend
Hubspot
Mule
Hortonworks

The ones with B2B probable (but not at all guaranteed) repeat business are

Arista
Ubiquiti
(They are both Disruptors of a sort).

The one with no repeat business is (but, consequently a much, much cheaper stock price)

LGIH

The one with no significant revenue is

The CAR-T trio.

As you can see, roughly 70% of my portfolio is built around recurring revenue.

Saul

For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.

A link to the Knowledgebase is also at the top of the Announcements column
that is on the right side of every page on this board

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Would Tesla have a recurring revenue of a sort because the majority of Tesla owners plan to buy another one? Either trading up to a newer S or getting a gen 3 as a second car. Or is this more properly customer retention even though each purchase is a different product.

Momentum investing - you can either look at it by stock price growth or by looking at past earnings growth. Either presumes that an object once in motion tends to continue in motion, and if figuratively going down hill will accelerate .
The practitioners of these two sides of the same coin often disparage the other. Both are actually mainly based on the past. There is ample documentation that stock price momentum works well enough to give price appreciation beyond the indices. I would like to see more studies of momentum based earnings.

Agree about the KB, worth reading for any investor

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Thanks, Saul.
Agree, this is a great list and you really hone into recurring revenue.

I have read KB, but its been a while. Good reminder, will go through it again.

Nilvest.

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