Using Guides to Create Estimates for My Stocks

Someone asked me in an email how I come up with the some of my estimates for upcoming quarters. Or more specifically, how I came to this conclusion in my August recap:

“…OKTA forecasts $144M and 36% growth at the top end next quarter. I’d anticipate something more along the lines of $152-$155M and 44-47% growth.”

I thought it might be appropriate to answer on the board. That will not only let me double check my work but also see if others have an even better way of doing this.

First, my general thought process behind these estimates can be found here:…. As far as the math behind it, like many here I track the financials for all my holdings in a spreadsheet. In addition, I have created a small area where I record their history of guides vs actuals. Here are my figures for OKTA:

	Est	Act	+/-	% Beat	Seq	% Gain
1Q19	$79.00	$83.62	$4.62	5.8%	$6.57	14.2%
2Q19	$85.00	$94.59	$9.59	11.3%	$10.97	13.1%
3Q19	$97.00	$105.58	$8.58	8.8%	$10.99	11.6%
4Q19	$108.00	$115.47	$7.47	6.9%	$9.90	9.4%
1Q20	$117.00	$125.22	$8.22	7.0%	$9.75	8.4%
2Q20	$131.00	$140.48	$9.48	7.2%	$15.26	12.2%
3Q20	$144.00	$154.00	$10.00	6.9%	$13.52	9.6%

  • Est = Top end estimate for the quarter from the company release
  • Act = Actual revenue from the company release
  • +/- = Amount of beat or miss
  • % Beat = How big of a beat/miss was it?
  • Seq = Sequential revenue gain/loss from the previous quarter
  • % Gain = Percentage increase of that sequential gain/loss

In OKTA’s case, all figures through 2Q20 represent the past. The $144M estimate for 3Q20 is the top end of the guide they just released. I fiddled around with the Q3 actual number until I found something that seemed to make sense when viewed in context with the numbers around it. These are nothing more than educated guesses really. The most reasonable figures – in my opinion only, obviously – seemed to be $152-$155M. As you can see, I’ve decided on using $154M as the best placeholder for now. If I keep that number, $154M will be the initial headline revenue number I’d personally like to see in OKTA’s Q3 release. I won’t be a slave to that number, but it will be my starting point for breaking down the rest of the quarter’s results.

In this case, my first impression upon seeing a match of $154M would be OKTA met my expectations and is probably a hold. That might seem tough given that revenue figure would be a beat, but OKTA’s a pricey stock in a tough market with increasing standards for high-growth stocks. Frankly, beats are expected. Anything below $154M would likely have me double checking my thesis and seeing if their secondary figures suggest a trim or sell. Anything above $154M would be a pleasant surprise and have me checking to see if there’s enough business momentum to merit increasing my allocation.

I realize the above might look and sound formulaic, but I don’t think that’s entirely accurate. We all need some kind of process for making buy/sell/hold decisions. This is just the way I initiate the internal conversation we all must have each time one of our companies gives us more information to digest. Like everyone else, I’m never quite sure where that conversation will end up once it’s started. The voices in my head are just as irrational as everyone else’s. :blush:

I hope that explanation is clear enough to make sense. Please let me know if it’s not and I am more than open to any suggestions anyone might have to improve this process.