As I do every day, I’m glancing at the PS ratios of the stocks I own:
ESTC 22 MDB 20 SMAR 20 TWLO 18 AYX 25 ZS 23 CRWD 37 PINS 16 OKTA 24 TTD 17
I can see reasons why all of these are where they are. PINS and TTD and TWLO look relatively cheap, but TTD may be growing slower than many others, and PINS and TWLO are already 15b+ companies.
That said, while I wouldn’t call these “cheap,” I don’t see anything on this list that is so expensive that the share price couldn’t increase 50% or more in the next 12 months. That’s not something I would have said about ZS at a PS of 40 or CRWD at 60. At this point, we don’t need multiple expansion…we just need multiples to mostly hold. Even if they contract 10%, if the companies are growing 50% or 60% or 70% or 80% or 90%…well, you get the idea. So at today’s prices, I’m pretty stoked to build my ESTC, MDB, SMAR, and TWLO positions back to over-sized.
But as I said here (https://discussion.fool.com/amazon-is-worth-more-than-zscaler-34…
We can’t expect the market to be reasonable. The market is over-correction personified, and stocks are wild stallions. When hot, they run up far beyond what logic or analysis can support, and when out of favor, they fall to levels beyond “cheap.”
But we can expect buyers to be greedy, and some of them to be smart, and to know a great deal when they see it. So we can expect our companies to have a floor. We just can’t pinpoint where, or when. So just make sure you can ride the waves down and then back up again, and then up further and further. Don’t mortgage your house to buy at these levels – or any levels! But don’t get out at these levels either. We have to be patient.
Yes, our stocks absolutely could drop another 50%. Or they can go up that much…or much, much more. I’m betting on the latter to happen over time…because that’s what the stock market does – it goes up over time. Sure, a company’s stock will only go up over time if the company keeps growing and becoming more profitable, but we have good reason to believe these companies will.
And since we can’t know what will happen over the next few days, or weeks, or months, it helps to know what has happened over the last, well, always: The best companies become more and more valuable.
PS - One of my lowest conviction companies, Teladoc (TDOC), was up 20-something percent in September, so I sold it today. I figure I can add opportunistically to one of my stocks, or add something new on which I have a high conviction.