We are where most analysts see it. A 15x forward revenue multiple can only be seen as a lot of confidence in continued growth.
I don't buy shares like XRO but got to wondering how to value shares like this.
Valuing shares on multiples of turnover seems optimistic. Especially forward multiples of 15.
Even if 'analysts' are using the same screwy methodology - could be they're all deluded. Like they were in the mid '80s with Chase, Judge etc.
Say XRO is trading at $15, for simplicity.
That makes its forward turnover $1 per share.
Say it managed to make a 30% margin on its forward turnover - like it stopped trying to expand and just tried to make a profit.
That would make 30cps profit.
Say you valued XRO on a PE of 15 on this putative profit. Then XRO would be worth approx $4.50.
Even at $4.50 I'd call that a high risk speculative purchase deserving no more than 1% of equity invested. And even then, to be traded cynically, using TA with well defined entry and exit points, and deep stops to cope with its volatility.
I’d be cautious for those tempted to jump back in boots and all, the best advice I could offer is to throw away all those ‘back of a cigi pack’ calculations for some DCF sensitivity analysis on both prospective customer uptake and the timing of that uptake.
But, if you are going to do it, I feel my post from last October, this time last year, still remains valid;
Originally Posted by MAC
The Clare Capital valuation range of $5.60 through $30.91 is extraordinary. The scenario 3 valuation of $17.16 based on a 1.06M customer outturn would propose that XRO is presently fully valued.
I do hope for holders that XRO ultimately reaches 3M customers and $30.91 under that scenario, but with the present SP at circa $19, there seems a lot more risk than balanced upside reward would offer and if the market, at any point, decides that customer growth may plateau low, or not grow to multimillion levels, it may suddenly be a long way down, potentially to $5.60.
Still, if you are a trader rather than an investor this is the stock for you, have a planned exit and hold until the technical's fire sell, ....., imagine all that tax on XRO profits.
I don't see a place for XRO in my investment portfolio, I've decided that I do equate uncertainty in forecasting with risk, and there are better risk/reward propositions in the NZX that fit my tolerance better.
That's not to say that XRO won't become the apple of NZ, we just can't predict with any confidence.
I never invested in xero because diligent always looked so much better. Continues to be the case in my view.
With IT tech stocks I guess it comes down to risk tolerance and beyond that to ones exp and ability to gauge and calculate the sensitivities and likelihood of possible outcomes.
I would agree though Black Knat, for most inclined toward more rather than less predictable outcomes, DIL would make for a more stable investment than XRO, still nicely undervalued also.
I don't hold either, would like to see a strategic plan presentation from DIL for that cash pile before considering taking a long term position again.
I think the historical metrics of salesforce from 2004 to 2014 using Morningstar are VERY relevant here because it includes investor fear/greed so it combines valuation metrics/investor emotions and a very similar growth pattern. If you play around you can flick your eye over 10 years of statistics easily on a table.
I'd be interested in any reasons why xero should deviate from this especially from the relevant 90mil to 1 billion revenue period (ignore 2008 to 2010 because of GFC)
I think the historical metrics of salesforce from 2004 to 2014 using Morningstar are VERY relevant here because it includes investor fear/greed so it combines valuation metrics/investor emotions and a very similar growth pattern. If you play around you can flick your eye over 10 years of statistics easily on a table.
I'd be interested in any reasons why xero should deviate from this especially from the relevant 90mil to 1 billion revenue period (ignore 2008 to 2010 because of GFC)
I like the regression analysis he did near the end of the paper and applied salesforce results to xero (like you have done)
Great chart is this one - under one scenario that puts XRO at $220 odd in 2017 .... I can live with that
Actually using crm stats puts xero at $46 a share 2017 with 1.5m customers $500m revenue
And 60% growth cash in bank 40mil loss $3.5mil I have been drinking so DYOR
It's interesting seeing the current SP only factor in two years of 80% growth rather than the 5+ during the run and peak. If we were to to take it very fearfully (ie a macro correction [a crash has <10% chance imho]) even with a deserved PS ratio of 9 (growth rate/10 + 1) and a 1 year out look the SP would be in the $9-$10 range. So, those calling for $5 or less are wanting to buy a nearly bankrupt company with all the growth gone. This does not even take into account cash in the bank. Whoops, not going to happen!
Fact is, just like stocks which go on runs, Xero has great momentum going for it long term, a great product and a CEO literally willing to die at his desk from overwork. We may have got ahead of ourselves earlier this year (ok we really did!), but this company is not an internet bubble circa 1999. It has real revenues and real margins once the extras are cut. If you don't believe a bubble can survive long term, pull up a 20 year chart of AMZN or YHOO
Actually using crm stats puts xero at $46 a share 2017 with 1.5m customers $500m revenue
And 60% growth cash in bank 40mil loss $3.5mil I have been drinking so DYOR
I prefer Clare's workings on pages 6 and 7 in that report that gives the $28 billion EV, $220 share
That uses a salesforce regression methodology applied to xero
Originally Posted by Casino
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not holding (yet)
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