Zillow

Investment Analysis Clubs Saul’s Investing Discussions
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Anyone here follow Zillow? I bought it because supernova recommended it and it has performed well for me but here is my issue. This is one seriously highly valued stock.

p/s ratio is an astronomical 15.97 although it has been as high as 25.

revenue growth is strong,
Sept. 30, 2014 291.91M
June 30, 2014 256.58M
March 31, 2014 224.82M
Dec. 31, 2013 197.54M
Sept. 30, 2013 173.53M
June 30, 2013 152.14M
March 31, 2013 132.98M
Dec. 31, 2012 116.85M

EPS is negative but they get a ton of mobile traffic and recently have really targeted realtors for more revenue which I think can only be a good thing.

My main problems with the stock are

  1. The valuation
  2. doesn’t earn money
    3)We bought a house recently and found zillows listings to be inaccurate, many houses were listed that had already sold or were no longer for sale. Redfin was 100% better.

Thoughts?

Thanks,
Ethan

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Anyone here follow Zillow? I bought it because supernova recommended it and it has performed well for me but here is my issue. This is one seriously highly valued stock.

Hi Ethan, I don’t follow it any more but I sold it some time ago because of the same issue you mentioned, the ridiculous valuation. Last time I looked they didn’t even give adjusted earnings, just adjusted EBITDA (which by definition isn’t taxed AND removes all depreciation and amortization. And even if you use this, and figure normal taxes of 35%, you get a PE in the stratosphere. Not my thing.

Saul

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Hi all!

Zillow is one of my left losers from other TMF pay service that I kept with the hope to sell it above my buy price.
When last week soared and almost did it I made the mistake of breaking my brand knew investing discipline of selling when I no longer believe in one of my companies.
Yesterday Z closed more than 10% below, what teach me a lesson, Saul was right, and everyone has to keep his or her own investing rules no matter what experts or Mr Market are saying. Lesson learnt!
My 2 c :slight_smile:

Maria

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Zillow is one of my leftover losers… that I kept with the hope to sell it above my buy price.

Maria, That’s what is called “price anchoring” and it’s generally considered bad for your financial health. The stock has no memory of what price you bought it. Its price is whatever its price is right now. You have to decide whether you want to be in it now. It’s irrelevant whether you paid $10 more or $10 less. (Except for tax considerations). What matters is whether you have a better stock to put the money in right now.

JMO

Saul

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Thanks for the language correction!
In this board I am learning English too
:wink:
Maria

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Don’t get me wrong. I love TMF, but it is not a blind love any more
Maria

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I don’t follow Zillow in particular but I do like the group known as “Internet Information Providers” (IIP). Zillow is listed as “Property Management” but they fit the IIP group much better. The attraction for me is fast growth and a strong moat based on the network effect they create. The downside is the risk and difficulty of buying them, they are usually overpriced – WAAAAY overpriced.

Take a look at the four year chart:

http://softwaretimes.com/pics/z-02-24-2015.gif

Anyone buying at the right time made a killing but at the wrong time has a big loss. That’s how these stocks work and you need this knowledge to buy the stock if you are not willing to trust to luck. The rule of thumb is that these stocks can have a 50% drop at any time. Z went from $160.32 on July 28, 2014 down to $95.43 on February 2, 1015, a 40.5% drop. For me, these stocks are out of bounds most of the time, whether they are or not making money. Of course, the ones making money are better than the ones making a loss. The promise of a pot of gold at the end of the rainbow is a strong temptation better to be resisted. Better a bird in the hand than two in the bush.

Rules for buying:

1.- make sure you have a really good reason to buy, that the company’s story makes good sense: leader of a category; if not the leader, an even better reason to buy; strong network effect; etc.

2.- at least a 25% drop from a recent high which will keep you out of most of them most of the time

3.- sell covered calls when you buy to get an “extra 10% or higher discount” when you buy. Make sure the strike price is high enough to warrant the deal (CAGR above 25%)

I have looked at Z for some time but never bought. Instead I bought BITA on October 9, 2013 at $19.70 and sold April 2014 covered calls with a strike price of 25 for $2.30. The stock was called: profit 40%, CAGR 97%. If it hadn’t, my cost basis would be $17.40, an 11.7% discount on the going price of $19.70.

Please look at the chart:

http://softwaretimes.com/pics/bita-02-24-2015.gif

BITA had not yet gone into exponential takeoff mode by October 2013 but the story was right. By selling the covered calls I missed a lot of upside but I can’t complain about a 40% short term gain and the potential to have a five bagger. Buying BITA today is a different story, I might have done it when it fell below $60.

Instead I bought TRIP on December 4, after it started recovering from the early November gap down. No covered calls this time

http://softwaretimes.com/pics/trip-02-24-2015.gif

My point is that these fish need special handling to be safe. They are tasty as hell!

Denny Schlesinger

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What matters is whether you have a better stock to put the money in right now.

Even this rule can help you lose money. My (new) rule is would I buy it today? If not, I have to very seriously consider selling it even if I don’t have a better idea at present. I have come to the recent conclusion that having cash available is better than having deadwood in the portfolio.

This is probably not a problem Saul has been faced with, but following the posts on this board and others will inform you that many of us hold stuff for a variety of bad reasons like price anchoring, asleep at the wheel, too many stocks to pay close attention to all of them, hope, etc.

In an effort to be a better investor this year than I have ever been in any previous year, I’m going through a painful process of recognizing that I’ve got holdings I should have parted with some time ago. Some of them are in IRA accounts, so I don’t get a tax advantage from selling at a loss - I just get a loss.

The only thing I would suggest as a selling strategy is that some of these dogs may be kicked out of the kennel by selling a call rather than selling the stock. It may take more than one option to rid yourself of the issue, but that’s not an entirely bad thing if you don’t have an immediate plan for the cash and also think that the fire has already burnt out and most of the steam is already out of the boiler. If you think the stock is still headed south, the sooner you exit, the better.

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This may not be a popular answer on the board, but for stocks like this with super high valuations and volatility, I think it is better to plan entries and exits on technical chart patterns because of the large swings. Or just trade options around them to risk less capital.
Even when they report news, the market reaction doesn’t always do what you may think.

They can be fun to trade, but very frustrating to invest in.

Personally, I think the company will be huge in the long term, but you can’t even place a value on it now because they are still figuring the business out. Once they have revenue and the price settles a bit it will be more attractive long term IMO.

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