I’ve been trying to reduce my mindless scrolling of the Twitter timeline. So far, my attempts have been reasonably unsuccessful (Twitter is a very addictive product!), and one recent tweet caught my eye:
This is a good thought provoking post. I'm going to take some more time to think about it, especially in the context of my current portfolios. Valuation does matter but it's worth considering their different circumstances. MSFT has a quasi-monopoly on a segment of enterprise software that needed a non-idiot CEO to evolve it with technology (cloud, mobile, gaming) and that's been successful enough to get a re-rating. NVDA developed a leadership position in a technology that was going to take over a big portion of mainstream computing thanks to gaming, crypto and other demanding applications. The wave just got bigger and they were right there. Maybe TRIP is like MSFT. Questions remain on the others for me because I wonder about switching costs and their ability to compete longer term. So far DBX has failed to come up with anything new that matters. They have all been duds. I think they might be better off figuring out an M&A strategy and executing that. I'm going to try and figure out a "lens" using your ideas here that I can use to view stocks in the portfolio and those being considered. Here's to wealth building once this market rout ends.
EBAY seems like a good candidate as well. There seems to be a decent margin of safety and the company should benefit if Amazon FBA sellers move to Ebay given lower fees. The platform just seems much more favorable to sellers than FBA. The company generates a decent amount of FCF and the share count has been going down the past couple years.
Thanks for the post. My current candidates for this include two rule of 40 companies: UPST and GLBE. Each have current year sales growth ~50%. UPST has a forward PEG ~0.3. UPST is disrupting loan loan underwriting. GLBE is in the middle of global payment processing. Recent deal with SHOP.
Based on the framework you laid out, I think a somewhat obvious "answer" would have to be Intel.
Quick numbers from Koyfin, all LTM numbers:
Intel — 9.8x P/E, 2.6x EV/Sales, 5.8x EV/EBITDA
AMD — 32.5x P/E, 8.4x EV/Sales, 35.3x EV/EBITDA
TSMC — 26.6x P/E, 10.1x EV/Sales, 14.8x EV/EBITDA
Intel's a massive cornerstone company, an institution in its industry, and people are very actively worried it's going to wither on the vine and fall away. And now there's a new, promising CEO with deep ties to the companies roots and great ambitions who's come onboard, strong possibilities of funding capex through government subsidies, etc etc...
The problem, of course, is that there are a lot of good reasons to worry about the future of Intel! If Gelsinger can't do the Nadella magic trick, maybe we get to see what it would have looked like if Ballmer was replaced by another Ballmer. And if Intel spins out its fabs as a separate foundry business (one of the more promising "upside" scenarios), it's sort of not clear how that'd play out for the shareholders of today.
These two cases were effectively massive underlying business accelerations.
I do not know if one could find similar cases.
Tripadvisor has the potential for a massive turnaround to multibagger, but also to be a value trap!
Spotify maybe.
In Japan, Zholdings is a leading internet portal + messaging platform and Payment method, kind of left for dead by the market on a Ebitda multiple basis, it could be the Case. Ill write it up on my substack soon.
In China Alibaba, and Baidu of course at low earnings multiples.
Adtech outside of TTD there are some interesting candidates - 4 which standout - DV and IAS on the ad fraud and OB and TBLA
The attraction of both of these pairs is that that they are duopolies with long term customer relationships differentiated technology which are still generating cash and growing fast. The ad fraud guys are mid to high 20 Ebitda multiples - put consensus a numbers against TTD there is no difference other than these are available for a sensible valuation. The other two are just dirt cheap 5x ebitda for OB is just silly - they really need to start buying back stock
Nice analogies. Reminds me of 100 baggers, a book by Chris Meyer. As a value investor, my biggest take away from 100 baggers is to buy profitable growth with a long runway & buying below a mid-teens multiple. From your picks above DBX and ASO maybe SPWH from sporting goods group fit the 100 baggers profile. Lots of interesting opportunities.
Good post! Bringing back some bad memories of owning a 10% position in MSFT for a year from 2012 to 2013 and getting scared about how bad the Windows 8 rollout was so I sold it......FML. Just absolutely brutal to lookback and read what I thought back then
But Salesforce has a chance to 10x. Clearly looks less likely on valuation at 9x sales. But they've been growing revenue at 25% per year. If that grows at 20% CAGR over the next 10 years I think you could get to a 10x. I think they could have a similar EBITDA margins as MSFT and if that happens you can get there.
Wayfair too if they really get the logistics and furniture delivery part figured out better. If they get head and shoulders above their competitors I think it could happen too.
This is a good thought provoking post. I'm going to take some more time to think about it, especially in the context of my current portfolios. Valuation does matter but it's worth considering their different circumstances. MSFT has a quasi-monopoly on a segment of enterprise software that needed a non-idiot CEO to evolve it with technology (cloud, mobile, gaming) and that's been successful enough to get a re-rating. NVDA developed a leadership position in a technology that was going to take over a big portion of mainstream computing thanks to gaming, crypto and other demanding applications. The wave just got bigger and they were right there. Maybe TRIP is like MSFT. Questions remain on the others for me because I wonder about switching costs and their ability to compete longer term. So far DBX has failed to come up with anything new that matters. They have all been duds. I think they might be better off figuring out an M&A strategy and executing that. I'm going to try and figure out a "lens" using your ideas here that I can use to view stocks in the portfolio and those being considered. Here's to wealth building once this market rout ends.
What about semicap ;)))
EBAY seems like a good candidate as well. There seems to be a decent margin of safety and the company should benefit if Amazon FBA sellers move to Ebay given lower fees. The platform just seems much more favorable to sellers than FBA. The company generates a decent amount of FCF and the share count has been going down the past couple years.
Thanks for the post. My current candidates for this include two rule of 40 companies: UPST and GLBE. Each have current year sales growth ~50%. UPST has a forward PEG ~0.3. UPST is disrupting loan loan underwriting. GLBE is in the middle of global payment processing. Recent deal with SHOP.
Intel!!!
Based on the framework you laid out, I think a somewhat obvious "answer" would have to be Intel.
Quick numbers from Koyfin, all LTM numbers:
Intel — 9.8x P/E, 2.6x EV/Sales, 5.8x EV/EBITDA
AMD — 32.5x P/E, 8.4x EV/Sales, 35.3x EV/EBITDA
TSMC — 26.6x P/E, 10.1x EV/Sales, 14.8x EV/EBITDA
Intel's a massive cornerstone company, an institution in its industry, and people are very actively worried it's going to wither on the vine and fall away. And now there's a new, promising CEO with deep ties to the companies roots and great ambitions who's come onboard, strong possibilities of funding capex through government subsidies, etc etc...
The problem, of course, is that there are a lot of good reasons to worry about the future of Intel! If Gelsinger can't do the Nadella magic trick, maybe we get to see what it would have looked like if Ballmer was replaced by another Ballmer. And if Intel spins out its fabs as a separate foundry business (one of the more promising "upside" scenarios), it's sort of not clear how that'd play out for the shareholders of today.
One to watch, though.
Big fan of Restoration Hardware's long-term growth trajectory and limited competition in the luxury hospitality market
These two cases were effectively massive underlying business accelerations.
I do not know if one could find similar cases.
Tripadvisor has the potential for a massive turnaround to multibagger, but also to be a value trap!
Spotify maybe.
In Japan, Zholdings is a leading internet portal + messaging platform and Payment method, kind of left for dead by the market on a Ebitda multiple basis, it could be the Case. Ill write it up on my substack soon.
In China Alibaba, and Baidu of course at low earnings multiples.
Adtech outside of TTD there are some interesting candidates - 4 which standout - DV and IAS on the ad fraud and OB and TBLA
The attraction of both of these pairs is that that they are duopolies with long term customer relationships differentiated technology which are still generating cash and growing fast. The ad fraud guys are mid to high 20 Ebitda multiples - put consensus a numbers against TTD there is no difference other than these are available for a sensible valuation. The other two are just dirt cheap 5x ebitda for OB is just silly - they really need to start buying back stock
Oscar health and pubmatic are mine choices
Nice analogies. Reminds me of 100 baggers, a book by Chris Meyer. As a value investor, my biggest take away from 100 baggers is to buy profitable growth with a long runway & buying below a mid-teens multiple. From your picks above DBX and ASO maybe SPWH from sporting goods group fit the 100 baggers profile. Lots of interesting opportunities.
MU... Similar tailwinds as NVDA!
I'm eyeing up SPWH a sporting goods chain.
I also have shares of GOED, online appliance and some furniture sales. Please do an OSTK, GOED.
Good post! Bringing back some bad memories of owning a 10% position in MSFT for a year from 2012 to 2013 and getting scared about how bad the Windows 8 rollout was so I sold it......FML. Just absolutely brutal to lookback and read what I thought back then
But Salesforce has a chance to 10x. Clearly looks less likely on valuation at 9x sales. But they've been growing revenue at 25% per year. If that grows at 20% CAGR over the next 10 years I think you could get to a 10x. I think they could have a similar EBITDA margins as MSFT and if that happens you can get there.
Wayfair too if they really get the logistics and furniture delivery part figured out better. If they get head and shoulders above their competitors I think it could happen too.
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