Thanks for your insight above, Fish. Though you have gills, you still aiitte in Monkey’s book.
Allow me to reframe the conversation. You’re explicitly talking in terms of 90 days or “next quarter.” That’s fine. Perhaps the high valuation and lower growth rate in the next 90 days will cause another buying opportunity. One way of investing is, in fact, short-term, however relatively you want to define it. Or momentum investing based with fancy graphs and bars and all kinds of reverse-inside-out candlesticks.
But another way is to think is in terms of the business and where it will be in years and perhaps, if we get lucky, even decades. Now go on and read the transcript from yesterday’s earnings call:
https://www.fool.com/earnings/call-transcripts/2019/12/03/zs…
Nothing in there suggests this company is thinking in terms of 90 days. They’re thinking in terms of the future of network security. The entire future, like infinity! Here’s a direct quote:
The next question is, why can’t they build a platform like Zscaler, well the answer lies in the architecture. Architecture is like the foundation of a building you can’t change the foundation unless you start all over which is hard and takes a long time. We know that start-ups like Salesforce and Workday competed and won against much larger on premise incumbent vendors, because of their cloud native architecture. We believe we are doing the same in the network security space.
So reasons to sell now is because next quarter might continue to be a transition phase in a much bigger cycle of continuing growth. Maybe the multiples continue to come down. You sell now, invest in something else, hopefully that goes up, you sell that, buy back in to ZS later at just as good or an even better banana bargain. But what if all those things don’t go that way?
Reasons to hold or buy more now: everything about the business suggests they have no competition in an ever expanding essential non-frivolous market with a sales team just starting to scale its ducks in a row––or whatever that weird animal metaphor is. Cost is the opportunity in other stocks while we wait. But also what if ZS is now as low as it will go and will start climbing instead? It is already off by 50% from its peak, right? Forgive the price anchoring.
To Monkey, option one feels closer to short term risk taking while option two sounds closer to what we mean by “investing” with investing implying “for the long term.” And everything about Zscaler suggests a successful vision in the years ahead.
Monkey’s not arguing that one is necessarily better––what’s ultimately better is whatever shakes the bananas from the tree. But we should know the philosophy we’re employing.
At the moment, everything about Zscaler suggets a powerful business only getting better and more essential with no competition in sight. Sales are lumpy? Fine. What will the price of ZS be 5 years from now. If it’s 100% higher, Monkey will take his 20% yearly gains without the agitation of guess work. His AYX position is already insanely high and that, too, might have some unforeseen rotten bananas in the bunch.
Not all excellent investing gains happen every quarter, each and every quarter. Sometimes there are pauses for integration.
TL;DR: sometimes excellent companies grow in non-linear ways and doing nothing is more efficient than doing something. Is patience not even a thing in investing anymore? Why or why not? (Note: patience is not the same as “hope” in this case; there seems nothing “hopeful” about Zscaler––just execution and the time needed to execute.)
But enough from the animals: What do the humanoids among us think?
Monkey (long ZS and still considering selling puts to gain extra shares at an even lower cost should it continue to drift lower)