…as I drift down the Lijiang River in Guilin in Southern China amongst the majestic landscape peaks…4 hours into it, I find time to catch up on emails and check the market.
Zoom (ZM) – After a very brief analysis this morning I find that after a couple days of trading, it has a EV/S of 42, or moren after today! Enterprise Value to Sales or EV/S is a metric I use when P/E (Price to Earnings) is not available (usually because they don’t have “earnings” yet….meaning they aren’t profitable, but are growing revenues and customers quickly). Many of the companies I own are in this situation and similar to them, ZM is growing revenues incredibly fast…over 100% it seems, which is incredible. HOWEVER, whereas many of my companies growing that quickly have EV/S of 15 – 25, an EV/S of 42 means that their enterprise value is a whopping 42 times their annual sales!! If they continue growing at 100% per year, it will be 21 next year, which is still a very high multiple unless they can continue to grow that quickly for several more years. Any slowdown or stumble will topple this stock quickly. I feel much of their growth is MORE than priced into the ZM stock price right now and I personally am not willing to make this bet at these prices. Further, I like to look for companies with a moat of some sort and little or no competition, like TWLO And AYX as two examples. ZM has several direct competitors and while their customer retentions scores and net dollar based retention rates are much higher than their competitors, I just am not prepared to invest in ZM at this high price. I would of course have LOVED to have gotten an allocation for shares at $36 in the IPO, but I wasn’t alone with that desire and did not get an allocation. I could be wrong and indeed, the stock price is up another 6% today on the hype, but I’m perfectly content and very happy to see my overall portfolio up over 3.5% TODAY as a whole, with the rest of the market relatively flat. It is worth noting that 5 of the 10 stocks are at or close to their all time highs going into earnings season. Hope the above is helpful on ZM.
A very quick initial review of SMAR looks encouraging: Their Dollar Based Net Expansion Rate is incredible at 134% and increasing the past 8 quarters in a row, and their revenues growth the past 8 quarters is over 60% every quarter…and their EV/S is under 22 and will drop based on their future guidance. I have slightly increased my SMAR position to a 3% allocation and will monitor this quarters earnings to determine whether to increase, maintain or decrease going forward. And for those options traders, I bought back my TTD April $200 puts on Friday at expiration. I had sold them for $16 in March and was able to buy them back for about $3 on Friday afternoon just prior to expiration for a very nice 40 day gain. If I had let them get assigned at $200, however, I would be up 6% more today…but let’s not get greedy after an incredible triple digit return on the options already. Cheers and happy investing…curious…did anyone end up buying ZM, LYFT or PINS on the first days of trading?? Cheers!
