Growth At an Unreasonable Price

Growth stocks are trading at high multiples relative to their underlying businesses.

Investors aren’t stupid. They’re paying up for a good reason. These businesses are crushing it. A handful are growing more than 100% year-over-year. If you want to see the inverse of crushing it, check out Blue Apron. Anyway, among the giant winners of 2020, one stock stands out among all the others.

Enter, Snowflake.

This company is on fire. In their first earnings report as a public company, we found out that their revenue grew 119% to $160 million. Assuming that compounds at ~20% for the next 3 quarters and their market cap stays where it is (~120 billion), their price/sales ratio would be….140x.

For comparison, Zoom trades at 62x sales and is growing at 366%. CrowdStrike is growing at 86% and is 50x sales. DocuSign is growing at 31% and trades at 60x sales. Even compared to these fast-growing high fliers, Snowflake is in its own stratosphere.

Look, I get it (I don’t get it). Snowflake might change the world, in which case it can look cheap, but the speed at which investors have discounted this is one of the crazier things you’ll ever see. It’s already as big as IBM, which isn’t a great comparison, but it’s closing in on Oracle, a real competitor that’s done $39 billion in revenue over the last twelve months.

A company this big trading at >100x sales. Wow. I don’t think this has ever happened before. Even in the dot-com bubble, Amazon only hit 45x sales.

I bought Snowflake in early November because enough smart people were buying it, and I wanted to learn more about this business. In just a few weeks, I’m up more than 60%. You might think this is bragging. It isn’t. I have…four shares. I wanted to build a position, but c’est la vie.

Josh and I got into Snowflake madness, the future of movies, and a lot more in the latest edition of What Are Your Thoughts?

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