I do not often make definitive statements about specific stocks because frankly what do I know what they will do. But Zuo, my statement last year was STAY THE BEEP AWAY! Paraphrased of course. It was not difficult to see at all.
The problem is, is that people become enchanted by personality, and they say they find a gem that the market just does not understand…the problem is, is that the market understands fundamentals. What the market does not understand well is FUD, and what the market does not understand well is just how good fundamentals really are for the best of the best of the companies with fundamentals that the textbooks say are not possible to have in a free and open market.
That is because the textbooks were mostly written prior to the more and more rapid development of disruptive technologies and business models.
I mean the telephone…easy enough one to understand. But when it came to electric power who here would have chosen AC over DC, as DC has the more powerful backers! Notice how Wall Street underestimated the phone, underestimated the Ford car, etc. But way overestimated DC power.
Over the last couple of years I have gained more wisdom than over the last 20. And I always had very good intuition. Pure is not going to become the next EMC or NTAP. Sorry, ain’t gonna happen. Not difficult to see. EMC created a market that no other competitor followed and made the streaming media and the SAN markets worldwide. NTAP did the same for NAS, a place no one else was able to join them. Pure - what market is Pure going to dominate worldwide (my question mark key no longer works). Pure has great fundamentals, is an excellent company, but it will never be one of the elites. Nutanix had its chance, and now it is growing at 25% or 30% of the growth rate of the HCI market. Sales force problems my arse.
The reason why people invest in Nutanix or Pure or Zuo or Cloudera is because they are cheap and the market is “missing” the underlying fundamentals. Ummm, well, none of us is smarter than the market. The turnaround plays being hoped for only happen in minority circumstances and usually only after an unexpected development. Doing the same thing and hoping for different results, gives you the usual expected result. You do not beat the market by thinking you are “smarter” than the market, you beat it by understanding what the market either never understands as it always overreacts to FUD, or underreacts to those few extreme world changing businesses.
In the modern era Microsoft is of course the still standing pearl of that paradigm. So is EMC. Amongst that group are those who did not survive such as AOL, a victim of disruptive technology it could not adapt to, broadband. These things are not random, these things are not luck, these things can be seen and identified in real time.
For those who want to ignore such things, or think they are smarter than the market straight on, Mano o Mano, good luck. One thing the market is very good at is examining straight forward fundamentals. It is the tangential issues the market has problems with. Zuo is a loser. Sorry. Sure, at some price it will be a stock winner.
Heck, Pure3 is down to $15 now, lower than its IPO price a few years ago, Nutanix is $27, still materially above its IPO price. But given what you have seen, what indication is there that these stocks are now “cheap” except for a short term bounce play[question mark].
Yet we are told it is so easy and predictable what Saul does. Just luck, just follow the revenue growth…I think Saul deserves a lot more credit than that.
Tinker
