In the ZS thread, Volfan posted: Regarding this whole EV/S multiple discussion, I would like to point folks to the thread I made some months back over on the NPI board about a possible new valuation methodology that could perhaps guide what a “right”/“correct” multiple could be. The concept still needs further fleshing out, but the basis seems logical to me. https://discussion.fool.com/work-in-progress-valuation-methodolo……
And at that link he posted: Inputs: Rule of 40 # (R40) EV/S ratio
Calculation (subject to tweaking): R40 divided by E/S ratio + 1-yr change in R40 divided by EV/S x adjustment factor
Not sure what magnitude the adjustment factor should have yet, but once this methodology is applied for enough different companies (maybe 5 or 25 different companies), I think a proper coefficient could be approximately determined.
I know TWLO grew around 60% last year and was FCF positive the last 2 quarters. I would expect TWLO to be 60 or higher for R40 score.
The chart is only as good as the data going in.
Jim
That particular item does look questionable, though the first 2 quarters may have had negative FCF margin and weren’t quite at 60%, still seems like TWLO should be higher on that chart though.
I noticed the discrepancy as well. But I like the format of the chart, as it gives more information than a single number. I’d like to see the data plotted for each company for the last 3 to 4 quarters (connected by a line), so that we can see the trend for each. I may take that on, but I won’t be able to do it right away.