I’m curious to know what you guys would think about this scenario:
Revenue has grown from $34 million in 2011 to $426 million in 2014, an extraordinary 133% compound annual rate. Although this growth rate is sure to slow, we think there is still a lot of growth to be had.…Management expects a 45% increase in revenue in 2015, and we think growth will stay very strong for years. The market seems to agree with us. Even though the stock is at less than half of its 52-week high, it still trades at over 14 times trailing 12-month sales. Nonetheless, we aren’t going to let valuation concerns stop us from getting in on this game changer.
This company doesn’t come without risks. To meet the astronomical demand for its products, it expanded at a torrid pace — headcount has grown from 175 employees in 2011 to 2,418 at the end of 2014. This can come at the loss of control and culture within a company, but we’re reassured by their high approval rating from employees on Glassdoor. This expansion has also meant huge costs for sales and marketing, as well as research and development.
These expenses should moderate in the coming years, but the company doesn’t expect to be operating cash flow-positive for two to four years, and isn’t planning on generating operating income for three to five years.
My question is this: Really incredible growth, huge price (14 times sales), burning cash for the foreseeable future, profits of any kind a distant vision. What would you think? You yourself?
I like the potential the company has/presents. With that said, it’s obvious that potential is already priced into the stock so there is a high level of risk if they don’t meet this huge potential or even do better which is hard.
I don’t just love companies that aren’t making money. It would be one thing if the loss was getting smaller each year but it’s actually growing so the timeline to getting to positive earnings seems a long time away.
They may be the first mover but this is an industry that doesn’t seem to really have a moat of any kind. It doesn’t seem impossible for one or many competitors shoot up in the next few years and then that potential in earnings just went away.
Me personally, I’m sitting this one out for a while to see how things develop.
Really incredible growth, huge price (14 times sales), burning cash for the foreseeable future, profits of any kind a distant vision. What would you think?
I’d pass on this company. Growth slowing to 45% is not very good for a company trading at 14x sales with no profits in sight. What is the size of the available market (can they grow significant)?
1. I like the potential the company has/presents. With that said, it’s obvious that potential is already priced into the stock so there is a high level of risk if they don’t meet this huge potential or even do better which is hard.
2. I don’t just love companies that aren’t making money. It would be one thing if the loss was getting smaller each year but it’s actually growing so the timeline to getting to positive earnings seems a long time away.
Chad, I tend to see it exactly the same way you do. I know that it may go up in the meanwhile, but I have other stocks that will go up that I can be surer about, and I don’t have to invest in every stock that’s going up.
Well, this has to be a company in the Internet space (educated guess). Internet space companies tend to have ridiculous valuations but only some make sense to justify the outlandish multiples that are assigned. In the Internet space, technology advantages switch or disappear just as quickly as one changes a babies diapers so beware.
With respect to the above scenario, I don’t like the multiple (14x forward sales) for a company expected to grow sales at 45% clip. Wow! And the company is losing money left, right, and center.
In the Internet tech space, the barriers to entry are low compared to say the medical devices space or the pharma space, tech changes rather quickly, and very few have a true moat that will enable them to last a storm.
While I have a good appetite for risk, the above is beyond my league.
I am passing and looking elsewhere. I won’t bite even after a 50% haircut.
I’m with Denny on this one. Simply not enough information in order to make an informed decision - or even hold an opinion. From what has been presented, I’m inclined to say “pass”, but really, without more information I don’t know what to think . . .
Without knowing their line of business, I don’t want to think… I’m with Denny on this one. Simply not enough information in order to make an informed decision - or even hold an opinion…
Hi Denny, BrittleRock, and Anirban. Sorry, since it just came out as a recommendation I can’t really post more about it without getting the post pulled. But I’m passing on it too.
