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What's driving valuations, Cloud takeover, 2021 predictions, new measure.
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HI Ears,

Thanks for posting the Bessemer's State of the Cloud 2021.

I’ve been meaning to get your thoughts and feedback about a Growth Value equation, created by a poster at Saul’s board on 3/3/2021, who applied it to some of the SaaS companies included in the BVP Cloud listing.

Growth Value equation:

GV = EV / GP / % Revenue Growth


GV: Growth Value where > 1 is HIGH and < 1 is REASONABLE

EV: Enterprise Value

GP = Gross Margin * annualized quarterly revenue from most recent quarter

% Revenue Growth = Y-o-Y growth in quarterly revenue expressed as a percentage, e.g., 20%, not 0.20.

My Google search cannot find this GV equation anywhere which raises my question if it’s legit or reasonable. I’ll leave it up to you for any reply here or at the thread above. Mahalo.

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Hi Ray,

Good to see you around these parts. I really admire your work. Thanks for stopping by.

Before addressing your question...did you see the short attack on XL Fleet (XL) last week? The short
sellers executed a classic manipulation of that stock.

Back to your question.

In my book, short-cut rules-of-thumb like this GV calculation are harmful when they're used to
make decisions, rather than as a jump off point for further research. For example, the author
concluded that PINS was highly undervalued, yet there was no discussion whether PINS Q4 -- on
which the calc is based -- was a representative quarter. Just a cursory look shows that PINS usually
has a dynamite fourth quarter. So extrapolate that growth for the year? Maybe for some other company
that has evenly spaced growth it works, but does it make sense for PINS where Q4 appears to usually
be a monster quarter? Maybe the quick look I took at PINS is wrong, but as Michael Mauboussin points
out, a rule of thumb just hides assumptions. The analyst's role is to make those assumptions

Another thing I think people miss when they focus on sales growth is sales growth per share.
They miss the part about financing. If you calculate sales growth per share vs sales growth for some
of the companies, sometimes you'll get a different picture. That doesn't mean, however, that I
advocate using sales growth per share as a decision maker. Rather it's a pointer -- a jump off point
for further research.

That's a superficial answer, Ray, without really digging into to it. Hope it's of some use.

Thanks for asking,
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Thanks Ears for your usual spot on astute thoughts about the GV calculation and for the pointer, i.e., sales growth per share vs sales growth.

did you see the short attack on XL Fleet (XL) last week? The short sellers executed a classic manipulation of that stock.

Oh yeah, I sure did and thought XL Fleet management gave an excellent response to the short attack as follows:

XL Fleet Refutes Grossly Inaccurate and Misinformed Report by Short-Seller

On 3/8/2021, XL Fleet Corp. (NYSE: XL), a leader in vehicle electrification solutions for commercial and municipal fleets, today responded to a March 3, 2021 report targeting XL Fleet, written by a short-seller with a disclosed economic incentive to negatively influence the Company’s stock price.

• XL Fleet’s technology is validated by independent testing facilities adhering to EPA standards and backed by real customer experience
• XL Fleet has revenue growth, positive gross margins, proprietary technology, repeat customers, and over 4,000 systems with more than 145 million miles on the road
• XL Fleet has successfully sold the majority of its electrified powertrain systems without subsidies in an industry where most sales have relied on incentives
• XL Fleet has highly experienced technical and program management teams that have successfully developed a broad range of electrified powertrain systems
• XL Fleet will report fourth quarter and full-year 2020 financial results on March 30, 2021

Upon further thorough review, XL Fleet reiterates that the report contains numerous factual inaccuracies, misleading statements, and flawed conclusions. The report should not be relied upon by existing or potential investors seeking to make an informed investment decision.


I just checked again the short interest ratio (Days To Cover) for XL and found 0.7. Shucks!

After the XL Fleet response, I added to my XL investment when the stock price dropped to $10.50 per share on 3/8/2021. Looking forward to their upcoming initial quarterly and full year end report.

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