No. of Recommendations: 2
At least here at the NPI, I believe we are savvy enough to know that valuations do matter. There simply must be some extreme of valuation wherein, an investment makes no sense or at least lesser sense compared to alternative investment opportunities.

For me "valuations don't matter" means that valuations calculated by the Graham and Dodd (G&D) methods don't apply because they were working in a relatively steady state market. NPI stocks are almost all "S" curve growth stocks that we aim to own between the bottom and top curves of the "S" During the middle of the "S" curve the standard G&D metrics don't apply, a different set of valuation metrics must be used - I wish I knew what they were.

When investors buy stocks with high P/S ratios, those stocks need to grow revenue at least 30%-40% on a yearly basis for many years into the future.

During the middle of the "S" curve they should! Top and bottom are signaled by market peneration, 15% at the bottom and 85% at the top (roughly). At the bottom you have multiple expansion, at the top, multiple contraction, in the middle 50% drops to drive one crazy!

Denny Schlesinger
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