Hi all,
and thanks for sharing your link to the ARBA story, karthiko. I think it’s good you brought up a concrete example because it illustrates something:
- It supports the view from many board members here, that you have to look at the concrete situation in every case and not jump straight to conclusions like “they will fall 50+% because it happened before”.
- There is a huge difference between now and the 2000 tech bubble in terms of valuation.
- You should always look for improving fundamentals in „high-valued“ stocks, otherwise they don’t deserve the premium.
To the ARBA story: In the article you can see that at their peek they had $400 mil revenue and a market cap of $40 billion. That’s a P/S of 100. I know we often discuss stocks being overvalued at 20 to 30 times sales (you even brought that up yourself). But a P/S of 100??? Everyone knows that there is a huge difference between a P/S of 20 and a P/S of 100. It has been stated numerous times on this board by many great investors: Valuations at the time of the 2000 tech bubble cannot be compared to valuations today - it’s a totally different story.
Furthermore it’s easy to see that ARBA’s fundamentals were deteriorating very quickly after their IPO. Their gross margins were falling, they started to spend heavily on marketing and their revenue growth fell apart. No wonder they fell like a rock after all was said and done.
Bottom line is, probably no one here on this board would ever have invested in this company in the first place and even if they did, they would have sold as fundamental deterioration became apparent. Of course ARBA’s case is a nice story about a stock falling from glorious heights to dusty lows. But it has nothing to do with any stock discussed here. It just feeds into that general suspicion that what goes up must go down; connecting dots that shouldn’t be connected and giving general caution that doesn’t help anyone. I know people have good intentions and just want to help save the novice investor from losing his money. But everyone is smart enough to put his own hard earned money into stuff he actually understands - and if not, he will learn it. Please everyone, stop cautioning a straw man, it leads to nothing except the same old discussions. What we actually want and need on this board is talking about high growth companies: ie their financials, quarterly reports, conference calls, competition, news, etc.
Best wishes,
Niki