I’ve done one of these each year since 2020, so decided to continue the good tradition. Why? I do it to keep myself honest. And to make sure that I keep an accurate score so that I have an objective yardstick by which to keep myself honest. And to reflect. So let the reflecting begin.
This years’ review
I thought to lead this discussion with two bogeymen: cash and valuation. You will notice that I hold quite a bit of cash currently - the most in the last 5 years - which is my way of expressing caution wrt valuation. I’ve been building up my cash position since October.
Why? Because stocks can go down (a lot) and having cash as a cushion helps me keep my zen. Also, I would very much prefer not to lose my shirt again like I did starting in November 2021 (I am still quite a way from my ATH of October 2021 so I may have lost some additional clothing too…). One may also like to consider a recent quote by our fearless board founder:
Add to that, that stocks are expensive right now. Very.
In fact, the S&P500 has only been more expensive based on the Shiller CAPE PE ratio twice since 1871 (yes…let that date properly sink in): in November 2021 and end 1999/early 2000.
That’s quite a timescale and record to think about. My grandfather wasn’t born yet at the start of this time series. And I’m 50. Only twice before. And now is the third.
So… do we think a tad of caution about US stocks’s valuations is perchance warranted? Or are we feeling lucky…?
5 year review
Here are my returns over the last 5 years (since running a concentrated portfolio, which I kicked off on 4 Jan 2020). For the decades before this date, my return was about 10% CAGR. So running a concentrated portfolio can work. If one does the work, and gets lucky every now and again. And misses the falling knives more than catching them.
| Year | Return$ | S&P | BRK.B |
|---|---|---|---|
| 2020 | 220.5% | 18.4% | 2.4% |
| 2021 | 52.5% | 28.7% | 29.6% |
| 2022 | -67.9% | -19.4% | 4.0% |
| 2023 | 44.7% | 24.2% | 15.80% |
| 2024 | 70.7% | 24.0% | 25.1% |
| Cumulative | 288.0% | 89.2% | 99.9% |
| CAGR | 31.2% | 13.6% | 14.9% |
So I’m chuffed: I’ve beaten the S&P over 5 years. Coulda done much better though, had I given credence to, and acted on, the fact that stocks were clearly very dear back in November 2021. I didn’t back then. Should I perhaps do so now? Or is this time different, like last time? 
Current portfolio
Here is my current portfolio:
| Ticker | % |
|---|---|
| GTLB | 7.2% |
| TSLA | 6.5% |
| RBRK | 6.8% |
| AMZN | 6.3% |
| HIMS | 4.2% |
| ASPN | 4.1% |
| ROOT | 3.8% |
| IOT | 2.5% |
| MNDY | 2.7% |
| PGY | 2.1% |
| Cash | 53.6% |
2024 monthly returns:
| Month | YTD return |
|---|---|
| Jan | 1.4% |
| Feb | 17.6% |
| Mar | 17.4% |
| Apr | 17.7% |
| May | 30.2% |
| Jun | 33.6% |
| Jul | 21.5% |
| Aug | 33.8% |
| Sep | 43.5% |
| Oct | 45.7% |
| Nov | 70.9% |
| Dec | 70.6% |
What struck me is just how much of a run-up there was towards the end of the year, post the US election. Sure, the next US president is just a fabulous and swell guy, but is his election worth such a run-up? Is he really such good news? Which narrative is likely to persist going into next year?
This one: Taxes are getting cut! Regulation is going way down! AI spending is going on higher for longer! Inflation is all but vanquished! Interest rates are going down! The swamp is going to be drained! The US is back, baby!
Or this one: Rates may need to stay a bit higher for longer! Tariffs are going up which is inflationary! There are nasty wars in the middle East! Ukraine is still at war three years on, and no-one has a magic wand to quickly end something like that! Russia is increasingly aggressive in Europe! Politicians could break the US government! How will the US balance the books!!? Stocks are extremely expensive atm!!!
I know which one was the narrative du jour these last couple of months.
Thoughts about the companies I own
Tesla
Tesla has been discussed so much by so many for so long that my only contribution is probably to give my summary of what the bulls are saying.
Tesla will solve full-self driving - probably next year - and will proceed to roll out this capability to all Tesla’s with enough compute on board to run the models, transforming the Tesla fleet into so many autonomous vehicles. This will be the iPhone moment for cars.
Then they will launch their own robotaxi service with lower-cost cars without steering wheels, which will have a massive cost advantage vs Uber because there is no driver in the car, the car is cheaper, and utilisation can be higher. And they will have an advantage vs Waymo due to cost advantages of the car and because Tesla’s self-driving will scale exponentially as it is not geo confined like Waymo is.
The energy and services businesses will keep chugging along.
But the game-changer will be Optimus, their humanoid robot, which will take over manual work done by humans in factories, warehouses, and elsewhere where manual, repetitive work is being done. Probably? in a year or two. None of this is captured in the historical numbers yet, which makes the company hard to value. But for the die-hards, here is revenue, and it shows some green shoots (remember that cars are expensive items, and high interest rates depress sales of expensive/luxury items):
| Revenue $m | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2020 | 5,985 | 6,036 | 8,771 | 10,744 |
| 2021 | 10,389 | 11,958 | 13,757 | 17,719 |
| 2022 | 18,756 | 16,934 | 21,454 | 24,318 |
| 2023 | 23,329 | 24,927 | 23,350 | 25,167 |
| 2024 | 21,301 | 25,500 | 25,182 |
And net profit:
| NI (non Gaap) | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2020 | 227 | 451 | 874 | 903 |
| 2021 | 1,052 | 1,616 | 2,093 | 2,879 |
| 2022 | 3,736 | 2,620 | 3,654 | 4,106 |
| 2023 | 2,931 | 3,148 | 2,318 | 2,485 |
| 2024 | 1,536 | 1,812 | 2,505 |
At a $1.3tr market cap, a run-rate P/S of ±12.5x, and P/E of ±126 she’s not cheap. At all. Which is why it’s not a bigger position.
Gitlab
Gitlab is a SaaS company which shares a duopoly with Microsoft’s Github in the DevSecOps space. I have previously owned it back in 2022 and it has been followed relatively well back then. The numbers look good and I expect to see acceleration fuelled by AI in future earnings releases. They have just announced a CEO transition which may have weighed on the stock. I believe the transition has been executed well though.
Revenue growth has held up above 30% yoy, NRR is 124%, gross margins are excellent at 91% this last reported ER, and both operating and free cash flow margins are positive and have shown leverage:
| Revenue | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2021 | 42.2 | 46.2 | ||
| 2022 | 49.9 | 58.1 | 66.8 | 77.8 |
| 2023 | 87.4 | 101.0 | 113 | 122.9 |
| 2024 | 126.9 | 139.6 | 149.7 | 163.8 |
| 2025 | 169.2 | 182.6 | 196 |
| Op Margin% | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2021 | -103% | -78% | -53% | -48% |
| 2022 | -45% | -42% | -36% | -35% |
| 2023 | -28% | -27% | -19% | -11% |
| 2024 | -12% | -3% | 3% | 8% |
| 2025 | -2% | 10% | 13% |
| Adj FCF% | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2023 | -34% | -37% | -3% | -10% |
| 2024 | -9% | 19% | -4% | 15% |
| 2025 | 22% | 6% | 5% |
While total customers added has stalled a bit due to a strategy change to target larger customers combined with a price increase, large (>$100k ARR) customer growth has been robust - growing 31% yoy, with the company adding 68 new large customers this last Q3, a record for a Q3 which bodes well for the upcoming and seasonally strong customer add Q4 quarter.
At a market cap of $9.2bn and run-rate P/S ratio of ±12x, it is relatively cheap for its revenue growth cohort compared to other SaaS companies (which are all relatively expensive relative to revenue growth, though).
Rubrik
Rubrik is a data backup and recovery company and a recent IPO which has shown accelerating revenue growth this last Q to 43% yoy at a pretty decent scale - around $1bn revenue run-rate. Quite a rare phenomenon these days. Here is revenue:
| Revenue $m | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2023 | 132 | 167 | 165 | |
| 2024 | 136 | 152 | 166 | 175 |
| 2025 | 187 | 205 | 236 |
And the yoy growth:
| YoY | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2024 | 15% | -1% | 6% | |
| 2025 | 38% | 35% | 43% |
Operating margin was -13% and net profit margin was -16%, but both improved nicely from prior q and yoy showing nice operating leverage. FCF margin was 7% and NRR was >120.
The company has a market cap of around $12bn for a run-rate P/S of around 13x, which is relatively cheap for a fast grower such as this. I hope they can put up another couple of strong quarters with solid growth and improving margins. With a bit of luck we could then see a further rerating of this stock.
Amazon
Why do I own it? For me it’s simple. Not revenue growth (although I don’t see that stagnating), but EPS growth. That has been growing extremely fast, and there is no reason for me to believe it will suddenly slow down. I believe they will reap the benefits of AI and automation in lower costs, and that will continue to supercharge EPS. Here are the numbers supporting my thesis in a nutshell:
| NI margin | Mar | Jun | Sep | Dec |
|---|---|---|---|---|
| 2023 | 2.49% | 5.02% | 6.90% | 6.25% |
| 2024 | 7.28% | 9.11% | 9.65% |
| Diluted EPS | Mar | Jun | Sep | Dec |
|---|---|---|---|---|
| 2023 | 0.31 | 0.65 | 0.94 | 1.01 |
| 2024 | 0.98 | 1.26 | 1.43 | |
| yoy | 216.13% | 93.85% | 52.13% |
So fast EPS growth fueled by an increasing net income margin and a continuation of revenue growth. At 2.3tr market cap and a run-rate P/E of about 40, it’s not exactly a steal. But it’s not the riskiest of bets either imo as the valuation is supported by solid earnings, earnings growth and FCF.
Aspen Aerogels
There has been a lot written about this company over the last year on the board. I have trimmed after their last ER but still held, and it is one of my few seriously underwater positions.
Revenue growth was flat qoq due to issues in their outsourced thermal barrier business and they made a net loss after a swing to profitability last quarter, which I think has really weighed on the stock.
However I believe the angst over new batteries and GM’s EV plans are overdone, and I hope that they will get the DOE loan. If they don’t, the shares could very well have further to fall.
But if they do - and the CFO said they are aiming to get it done and dusted before 20 January, and they show continued growth, the market could once again smile on this one.
Market cap is $1bn on a run-rate P/S of 2.1x. Perhaps I’m just being foolhardy here, but I intend to hold on for a bit longer…
Hims&Hers
Again, lots written on this one also. It has been a very volatile stock, as angst over a potential growth slowdown due to glp-1 drugs that they sell no longer being designated as “in shortage”, alternating with people probably looking at the numbers and saying “what!?”. I fall into the latter category. Here is revenue, with the last Q’s number being the high end of guidance (NB! not an actual result!!).
| Revenue $m | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2021 | 52 | 61 | 74 | 85 |
| 2022 | 101 | 114 | 145 | 167 |
| 2023 | 191 | 208 | 227 | 247 |
| 2024 | 278 | 316 | 402 | 470 |
The guided Q4 number above should be good for a 17% qoq growth and an acceleration of the yoy growth to 90% yoy. They will then have to issue guidance for the 2025 year, and perhaps that is what is causing people to be antsy. I will hold until then, as I don’t see many opportunities with this growth priced at this level.
Customer growth, the litmus test for me, was very good:
| Subs '000 | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2022 | 748 | 916 | 1040 | |
| 2023 | 1209 | 1300 | 1426 | 1537 |
| 2024 | 1,709 | 1,864 | 2047 |
They added 183k subscribers in the last quarter, a new quarterly record. Add to that their success with personalised subscriptions, which grew by 248k to more than a million, translating into 175% yoy personalised subscriber growth, and I see a strong basis for continued growth here.
Market cap is $5.3bn and with a run-rate PE of 17x, it’s not too expensive imo. If growth slows, that’s a different story of course, but I see no indication of that in the numbers.
Root
I wrote about ROOT before the big pop here and then after the big pop again here.
It was a great opportunity which worked out nicely. Hopefully we can jointly find a couple more of those! Going forward I still see good things for ROOT, but it is less obvious for me now. They need to successfully grow policies in force in order to maintain/regain growth now that they’ve proven they can be profitable.
At a market cap of $1.1bn and a run-rate PE of ±13x, this is the type of valuation that I feel a bit more comfortable with. But revenue growth needs to pick up again after the massive 165% yoy, but only 5.7% qoq growth of last Q. They guided flat for next Q. I’m rooting for a beat.
Samsara
What a great company. I’ve owned them before but thought that the valuation got a bit too much for me. After the recent pullback I felt happy to enter again. The most recent results were truly impressive, with the most important single number for me being their ARR number, which grew 35% to $1.3bn. Secondary, but also important was the improvement in margins. Gross margin came in at 78% vs 75% a year earlier, operating margin at 11% vs 5% and FCF margin at 10% vs 4%.
They also hinted at new vectors for growth: geographical expansion, and new products, of which an AI themed one was of course on the menu. But the new “asset tag” product is already producing the goods. Says the CFO:
we achieved more than 100% quarter-over-quarter growth in Asset Tag net new ACV in just our second quarter of selling that product
It’s a $24.5bn company trading at a 19x P/S, so not cheap by any measure. But it’s very high quality, which probably supports a relatively lofty valuation.
Pagaya
Pagaya uses AI to underwrite loans for lending partners, which they then package and sell to financing partners. Very much like Upstart, yes.
I think, with a touch of luck, it could be another ROOT. If all works out as the management plans that is. The chance of it all panning out is up to you to decide; the market currently clearly thinks it unlikely. And to be fair they’ve really fouled up in the last couple of quarters by surprising the market with two secondary offerings and a nasty two quarters of write-downs of retained loans.
So certainly not for the faint-hearted, this one. Still, if it all pans out, they could turn GAAP net profit positive in the next couple of quarters, which I believe will result in a big rerating of the stock. That is essentially the whole thesis.
What needs to go right for such an outcome? They need to keep increasing their network volume, retain or incerease their margin on that, which will grow their revenues. Then they need to keep their core opex under control (which they’ve been doing over the last couple of Q’s), and not have any further write-downs of retained loans (which they still need to prove to us).
Market cap is less than a billion, at $700m or so, meaning it is priced at just 0.7 times run-rate revenue (which was $257m last q, growing at 21%). It’s priced for dead. If all of the above positive things happen, this could turn out very nicely but I wouldn’t make it a large position due to the uncertainty.
Conclusion
I, and many fellow board members, have had a great two years.
However, I feel the US stock market is very expensive at the moment, and that feeling is supported by a lot of numbers. The level of over-valuation isn’t something relatively small either. You have to look very hard at any time-series of valuation metrics to find ANY time when the market was this expensive. Will it last? It didn’t in any of the previous times that the market was at this level of richness.
Which is why I’m taking about 20% of my portfolio permanently out of the market and into cash. Going forward that % won’t be reflected in my port anymore.
Good luck to all, and be careful out there!
-wsm
