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No. of Recommendations: 3
What about measuring these factors across all the stocks:
P/S
Growth y/y for most recent 12 months.
FCF
Rule of 40


Dreamer:

I have no doubt that AI is being applied to stocks and despite what Andrew Ng said about its application to investing, many out there are most certainly applying multiple factors to try to determine beset combinations for predicting stock movements. I am not sure how we could group these stocks in portfolios by adding too many others factors.

Again, we all know that highly valued stocks can stay highly valued for quite some time. This little exercise is suggested under the premise that revenue growth may be slowing in 2019.....based on numerous companies lower revenue growth rates. If that revenue compression really occurs on a board basis in technology, it stands to reason that the higher P/S stocks are in more jeopardy.

But I feel like this isn't the smartest way to invest and that I may be missing something and really want to understand this more quantitative method vs. my "does it feel right" method :) NFLX has also had an historic P/S of around 12. But I don't understand whether 12 is high or low. And do I need to compare a P/S with a P/E to determine what that means? Or are you saying ignore P/E and just use P/S ?

Hey Paul:

Your approach is a good one for consumer products but for technology, we dont have as intimate relationship with switches, servers, databases, etc. So IMO, we need to use adoption data and revenue growth data to determine if many of these companies are doing what they should be doing....gaining market share. You many have noticed that shares are often not aligned with the tech adoption.....this can be important to know when a stock is way overbought or way undervalued. I think as regards technology investments this rule has proved its metal over time:

http://boards.fool.com/the-duma-rule-20598973.aspx

I do like using historical P/S for understanding whether a stock may be undervalued but it is certainly not the only consideration in a more broad review......as you swee here at the NPI.....our deep dives are really deep.

Regarding your comment about NFLX’s historical P/S being 12.....not at all:

http://www.morningstar.com/stocks/xnas/nflx/quote.html

Click on that valuation tab and see every year’s P/S going back to 2008.......you can see that it now sits at 2-3 times it’s historical norm.

That is an incomplete theory because it does not say in what time frame it will underperform. In a buy and forget portfolio it might be ten or twenty years. In a day trader's, four hours to a couple of days. The "S" curve scenario says that P/E or P/S ratio will contract as high market penetration approaches. A high P/S for MDB is less worrisome than for AAPL.

Denny:

I agree but perhaps implicit in my post was the commentary on lowered revenue guidance for 2019......that is the timeframe I am considering.....the next 12 months......we have a convergence of very high P/S stocks with lowered revenue guidance......not a healthy set up IMO.

I am still trying to feel out whether we are potentially seeing a broader swath slowdown or just from a few stocks.....just seems that several are coming out with lower guidance and we are coming off a couple years of mind numbing massive revenue beats......maybe a bit of an overshoot.....not sure.
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