Maybe it’s time to start worrying about tech stock valuations. A standard analyst note raised my alarm: On Wednesday, Goldman Sachs upgraded Palantir Technologies from Hold to Buy, while doubling its target price on the stock to $ 34.
It’s not that I’m concerned with Palantirs business; I see real value in the company’s big data analytics platform. But the Goldmans report captured the market’s current philosophy of valuation, which is essentially to ignore it.
The investment bank maintains that
(ticker: PLTR) deserves to trade online with other fast growing companies. And Goldman points out that companies that earn more than 30% per annum are currently trading at 44 times estimated sales in 2021. That multiple brings you to a price of $ 34 on Palantir shares. Keep in mind that last September, the stock opened at just $ 10 after it was listed directly on the New York Stock Exchange.
Reading Goldmans’ note, I had a cold sweat. The valuation strategy doesn’t answer an obvious question: Should software stocks, or other stocks for that matter, trade at 44 times forward sales? As a benchmark, the Nasdaq-100 index only gets five times the sales of 2021.
Using FactSets’ filter tools and widening the window a bit, I found dozens of stocks trading over 35 times the sales estimates for the 2021 calendar. The listing on this page shows the highlights , including several of the biggest winners of 2020:
Focus on video communications,
I’m not the only one who has reservations about multiple nobles. The reaction of the markets to the tech benefits suggests that doubts are mounting.
Zoom Video (ZM) is down 12% since the release of its October quarter results on December 1 and 30% from its all-time high. It is still trading for 36 times futures sales. Investors are concerned that growth will slow when the pandemic subsides and people spend less time on video calls, but I’m not sure they’re worried enough.
Shopify (SHOP) has been an amazing pandemic success story, and I’ve been too bearish. The e-commerce software company reported 94% revenue growth in the December quarter last week as small businesses rushed to set up online storefronts. But Shopify also said that revenue growth will moderate in 2020 as the pandemic ends.
As the earnings report drew near, Shopify shares had risen nearly 30% year-to-date, more than tripling since late 2019. Last week, however, investors ignored the beat. in profits and the stock fell 2%. With stocks trading at 44 times sales, the valuation still looks tight. If you like
(AMZN) revenue at the same multiple of futures sales, the company would be worth more than $ 20 trillion.
Fiverr (FVRR), which operates an online marketplace for freelancers, reported fourth quarter revenue of $ 56.7 million, up 89%, and forecast sales of $ 280 million in 2021, up 48%. Fiverr shares have wavered again in the news and why not?
Fiverr is up 1,200% since the end of 2019 and 57% since the start of the year. Strangely enough, part of the recent surge appears to be tied to the company’s decision to go for a Super Bowl commercial. Fiverr is up more than 30% since plans were unveiled for the announcement in mid-January, increasing its market cap by $ 2.6 billion. The commercial cost Fiverr $ 8 million. (Ask Pets.com how their January 2000 Super Bowl commercial worked.)
Many of these tech stocks are so expensive that even big sellers haven’t done much to verify their valuations.
Snowflake (SNOW), the cloud-based data warehousing software company, is trading nearly 80 times estimated sales for the 2021 calendar year, and inventory is down 32% from its December high of 429 $. At a current price of around $ 300, the stock is still nearly triple its initial launch price of $ 120 last September. The company reports its results on March 3.
And that brings me back to Palantir. The stock jumped 15% on Friday, to $ 29, but that was only after a six-day losing streak in which it lost 35%, despite the Goldman upgrade.
The company’s latest earnings report showed strong demand from government customers, but disappointing business growth. Meanwhile, the expiration of the post-listing lock-up has allowed many employees and early investors to sell their shares, which is not a terrible idea given the scale of the stock movement.
In November, I presented a bullish case for
(MU). As I noted at the time, there is a growing demand for the company’s memory chips for cars, cloud computing, 5G phones, and PCs. I wrote that the stock could double over time. Its already rallied 57%, at a recent $ 91. Last week, Citi analyst Christopher Danely wrote that with the memory supplies tightening and prices rising, earnings are expected to explode from around $ 3.62 per share over the course of the year. fiscal year of August 2021, to $ 10.64 in fiscal year 2022 and to $ 15.83 in fiscal year 2023. What about the stock? He thinks it could reach $ 150.
I have also always been optimistic about
(SFTBY) both in this column and elsewhere in Barronsand over time it turned out to be the right choice. There were dark times last spring when the stock was cut in half. But a combination of asset sales, redemptions and improved performance for the $ 100 billion SoftBank Vision Fund made a difference. The Vision Fund is now ready for its biggest outing to date.
Coupang, a Korean e-commerce giant, has filed for an IPO in the United States. SoftBank owns 37% of the company. With revenues comparable to
(EBAY) but growing by 90%, count on a high valuation. SoftBanks’ stake could be worth $ 20 billion or more.
SoftBank shares set a new high last week, quadrupling from March lows. With a portfolio filled with IPO contenders, the stock may continue to rise.
Write to Eric J. Savitz at [email protected]
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