I May Never Buy the Growth Stocks

The growth stocks have been destroyed over the last few months. Many are down by 30-50%. I wanted to get an idea as to whether I could soon step in and buy some of these names.

Below I’ve gone through my list of growers. This is not comprehensive of all growers or of the best growers. It is just the list of stocks that I track. I went through a simple exercise with each. Look at the basic numbers. Don’t look at the specific business numbers, don’t look at addressable market, user metrics, moat any of that stuff. Just look at growth, cash flow, opex – as if they were a generic business that just happened to be growing instead of a magical SaaS business.

The result? I don’t know if I will ever be able to buy any of these stocks. I mean they are still incredibly expensive by my eye. If they can’t look cheap after the kind of collapse they have had, I don’t think they ever will.

ADBE

• $243b market cap
• $6.1b of cash, $4.1b of debt
• grew 14% this year, expected to grow 15% next year
• trades at 31x PE on 2022 EPS
• in 9m cash fow of $5.1b, capex of $249mm and acquisitions of $1.47b
• I mean its 36x annualized cash flow for a business growing under 15% ex-acquisitions

BIGC

• $2.3b market cap
• $360mm cash, $335mm of debt
• grew 42% last year, expected to grow 28% in 2022
• they only grew 22% in year prior to COVID
• gross profit grew $45mm in 9m, opex grew $55mm
• cash burn of $31mm
• also had $81mm acquisitions, $2.3mm capex
• these guys are honestly kinda brutal

CRM

• $225b market cap
• $13.3b cash, $10.6b debt
• grew 24% this year, expected to grow 20% next year
• gross profit was up $$2.7b in 9m, opex up $2.2b
• they did $4b of cash flow in 9m, had $550mm capex and $14.8b of acquisitions
• in 2020 acquisitions of $1.3b were nearly have of cash flow
• so roughly at 47x FCF and growing 20%, that isn’t taking to account how much cash is being used to generate revenue growth from acquisition
• gets a 48.5x PE
• My problem here is that at $225b market cap, if they have scaled to their true profitability by now, when does it happen?
• I mean they are 2x the size of IBM – when does the market say wait – they are just growing primarily by acquisition like IBM did, why do they get at 48x PE while IBM gets 13x?

CRWD

• $43b market cap
• $1.9b of cash, $700mm of debt
• grew at 64% this year, expected 40% next year – if these growth numbers turn out to be rightits a pretty big slowdown over last 5y (110%, 93%, 82%, 64%, 40%)
• gross profit increased $300mm, opex increased $335mm
• generated $415mm of cash from operations, $105mm of capex and another $353mm of acquisitions
• trade at 209x PE on 2023 EPS, 325x on 2022
• very expensive but they are at least growing in a profitable way

DBX

• $9.3b market cap
• $1.9b of cash
• $1.37b debt
• growing at 12% this year, expected to grow 10% next year
• grew gross profit by $164mm in 9m, opex was pretty much flat ex-impairment
• generated $567mm of cash, capex/acquisitions of $146mm – ~20x FCF
• trades at 14.9x 2022 EPS
• its the cheapst SaaS by some margin, but as a company its still not really that cheap – 10% grower at 15x PE

DDOG

• $45b market cap
• $1.45b of cash, $735mm debt
• growing 65% this year, 42% next year
• trades at 44x P/S, 445x PE
• gross profit increased $200mm in 9m, opex roughly the same
• generated $170mm of cash in 9m, capex of $27mm, acquisitions of $200mm
• seems like if you are over that 40% growth number any multiple is legit

EPAM

• $31.6b market cap
• $1.3b of cash, no debt
• revenue grew 41% this year, 30% next year
• trades at 50x PE
• revenue grew $700mm, all expenses grew $600mm
• the weird thing about these guys is that they aren’t actually SaaS, they are outsourcing, but they trade at 8x P/S like they are SaaS
• before pandemic they grew 20%, I bet they come back to that level

FSLY

• they are a $3.7b company – have $1.1b of cash, $932mm of debt
• they lost $162mm in 9m
• gross profit grew $16mm, expenses grew $120mm (!!)
• were negative cash flow, maybe flat excluding working capital
• but they spent $41mm in capex
• estimates are for 21% growth next year
• FSLY is really bad, they hardly grew at all but expenses grew a ton
• Just to say it again, this looks bad to me – how can expenses increase 10x GP

CDLX

• $2.1b market cap, $293mm cash, $174mm debt
• they are growing – grew 47% in first 9m
• but expenses way outgrew revenue – expenses up $115mm, revenue up $57mm
• they burned $38mm of cash flow in 9m
• spent $494mm on acquisition – some of that growth wasn’t organic
• estimates are for 34% growth next year
• kinda brutal, I get the sense they are trying to cover up a bad business by spending to create growth

HUBS

• $24.8b market cap
• call is for 29% growth next year, had 46% this year
• they are expected to have $2.39 EPS next year – 219x PE
• revenue grew by $300mm, gross profit grew by $233mm, opex grew by $236mm
• had $143mm of cash flow, $70mm before working capital, $58mm of capex
• to their credit they aren’t buying up companies left and right, I don’t see big acquisition expenses
• brutally expensive but at least they are making money

IDN

• $90mm market cap, $13mm cash
• expected to grow revenue to $16mm this year, $19mm next year
• so they trade at 4x P/S
• grew revenue by $2.8mm, expenses by $5mm this year
• very slightly cash flow positive
• who knows, at least its reasonably cheap on P/S

Open Lending

• $2.6b market cap, $90mm of cash, $143mm of debt
• expected to grow revenue 15% next year (grew 90% this year)
• EPS estimate of 92c – 22x PE
• gross profit grew by $90mm, opex really didn’t grow at all
• their cash flow was $68mm for 9m, very little capex
• this does not seem like a terrible business – its just too expensive (update: since its auto loans, see below, it may be a terrible business)
• I mean stockholder equity is $128mm – like 20x book – that seems crazy for what is essentially a glorified bank – update: I’m wrong about this, not a bank, don’t know what I was looking at here, they are just an originator of auto loans, sell to banks for fees, also take a fee (and risk?) on insuring loan from 3rd party

LivePerson

• $2.3b market cap, $630mm cash, $565mm debt
• they grew revenue by $80mm, expenses by $56mm
• cash flow was $35mm, had capex of $57mm
• their interest costs were way up for some reason – i think accretion on convertible
• estimates are for 27% growth next year, had 28% this year
• they only trade at 3.8x P/S on next years sales
• this actually isn’t as bad (or expensive) of a business as some

Lightspeed POS

• $6b market cap
• gross profit increased $72mm
• opex increased $156mm (!!)
• they have $1.18b of cash, no debt
• cash flow from operations was negative -$27.6mm but the kicker is $398mm on acquisitions (!!)
• estimates are for 32% growth 2022, after 140% this year
• this is a shit show

Cloudflare

• $33.5b market cap
• trades at 37x 2022 P/S, 351x EV/EBITDA
• grew revenue at 50% this year, expected 37% next year
• gross profit grew $125mm in 9m, opex grew $130mm
• they did generate $24mm of cash flow, and excluding working capital generated ~$35mm
• capex was $75mm in 9m
• the numbers are better than most but its ridiculously expensive still

Okta

• $31.5b market cap
• have $2.5b cash, $1.8b debt
• gross profit grew $317mm this year, opex grew $600mm
• cash flow was $90mm this year – includes a big $198mm deferred revenue
• they spent $215mm on acquisitions
• grew at 53% this year, expected to grow at 37% next year
• trades at 17.6x P/S
• opex being twice GP does not look good to me

Onespan

• $665mm market cap
• these guys aren’t really growing – they saw a drop in revenue in 9m
• operating costs of $12mm increase while revenue dropped
• -$4.4mm cash burn in 9m, another $1.5mm of capex
• average estimates are 5% growth next year
• they have never really been a growing business $211mm, $253mm, $215mm revenue in 2018-2020
• I seem to remember a SaaS transition here so maybe that is some of the revenue slump
• though there is no discernable increase in deferred revenue that I can see
• I’m not sure if these guys are even SaaS?

Paycom

• $21.4b market cap
• grew 24% this year, expected to grow 24% again next year
• were growing 14% before COVID
• $230mm of cash, no debt
• $229mm of cash flow from operations in 9m, $275mm if not including working capital
• gross profit increased $125mm while opex increased $115mm
• they are profitable – $4.44 EPS this year, $5.62 EPS next year – 63x PE
• they are way too expensive for a company likely growing at <20% going forward

PagerDuty

• $2.7b market cap
• $545mm cash, $280mm of debt
• grew 31% this year, expected to grow 26% next year
• revenue increased from $154mm to $202mm, gross profit increased $36mm
• opex was up $62mm
• at least for the 9m, opex is increasing at faster rate than revenue
• they burned $7.4mm of cash, they would have had a little more before working capital
• $4mm of capex
• are expected to grow 26% next year, after 31% this year
• trades at 7x P/S
• this isn’t nearly as expensive as some, its not cash flow positive, but this is probably one of the more reasonable ones by the numbers

Paypal

• $226b market cap
• cash of $14.5b, debt of $7.9b
• expected to grow 18% next year, grew 18% this year as well
• has been growing in 15-21% range last 5 years
• PYPL has $191 share price, earned $2.87 in first 9m, $4.62 EPS for FY – 41x PE
• revenue increased by $3.1b, costs increased by $2.2b
• they generated $4.6b of cash flow in 9m, around $5.5b before working capital
• capex and acquisitions were $1.2b
• so $4.3b FCF in 9m – that is about a 2.5% yield annually

Square/Block

• $67b market cap
• $6.8b cash, $4.7b debt
• they grew 86% this year, 101% last year – but are expected to grow 7% in 2022
• growth two years before COVID was 49% and 43%
• EPS estimate for 2022 is $1.86 – 78x EPS
• revenue increased $7.2b, BTC revenue increased $5.2b of that
• so the rest of the business did grow quite a bit – transaction by 47% and subscriptions by 78%
• COGS increased by $6b, OPEX by $1b in 9m – so they became a little more profitable
• I’d have to dig in, 7% growth next year does not look good though for that kind of multiple

NSTG

• $1.6b market cap
• have $370mm of cash and $225mm of debt
• trade at 9.9x P/S
• they did $144mm of revenue this year, 22% growth, $180mm next year, 25% growth
• this is one of those clinical and research suppliers
• revenue grew $21mm on 9m, opex grew $33mm
• growth seemed to slow in Q321, was about 17%
• they burned $73mm of cash in 9m, another $5mm of capex
• these guys look awful, they better see growth pick up

Qualys

• $4.9b market cap
• forecast is 13% growth next year, had 13% growth this year
• $490mm of cash, no debt
• gross profit grew $25mm, 12%
• opex grew $40mm, 25%
• they grew 13-15% before COVID
• they had $160mm cash flow from operations, $21mm of capex
• so fcf was $140mm – FCF yield of 3.1%
• trade at 38x next years EPS, 43x this years EPS
• well they are generating FCF but I don’t know why they get a 43x PE

Affirm
$22.4b market cap

• grew 63% this year, expected to grow 47% next year
• trades at 12x next years sales
• they have securitizations trusts which makes them a little tricky to understand
• revenue grew by $93mm in 9m, expenses grew by $225mm
• their accounts receivables was up huge which drove positive cash flow but didn’t make money otherwise
• they are a buy now pay later company so all these loans on their books are likely subprime – pretty hard to value on numbers without understanding the loans

TEAM

• $77.5b market cap
• cash of $1.2b, debt of $350mm
• grew at 25% this year, expected to grow 24% next year
• trades at 23.8x P/S and 146x P/E
• in FY2021 gross profit grew $380mm, opex grew $320mm, but they also took a huge non-operating expense for 3rd year, not sure what that is
• in Q122 reveneu grew $155mm, OPEX grew $141mm
• their cash flow from operations was $841mm (including $294mm of deferred revenue), capex/acquisitions was $120mm
• so that is about $700mm of fcf – 100x
• its crazy to me that a company growing 24% gets a 146x PE multiple – I mean the logic that one business that grows 5% gets a 10x PE while another that grows 25% gets 140x PE is hard to fathom