A little thread on growth expectations:

1) Given the increasing focus on “growth stocks” in recent years, thought it would be an interesting exercise to look back at the fastest growth companies by sales over the past decade to put future expected growth rates into perspective.
2) Calculated the growth rate from 2011-2020E (9 yr CAGR) since 2010 could be considered near the trough of the GFC. Many software/internet companies IPO’d over the past decade so don’t have data. I included the annual growth rates if sales data was available for 2012-2014.
3) Here are the list of companies ranked by CAGR.
4) There are ~2,300 companies publicly traded in the U.S. and Canada today with data that far back that had starting sales >$20M.
5) A few interesting notes:
-60/2300 companies (2.5%) had a sales CAGR >35%. As much of the market has come to realize in recent years, an unusually large proportion (>50%) of the 60 high growth companies came from internet/data services, software, and “tech type” companies.
6) An important note is that nearly all of these companies (with the exception of $FB, $TSLA, and a few others) did not have starting revenues greater than $200M from their base.
7) 140/2300 (~6%) of companies had growth >25%. Of the 140 companies, about 1/3 could be considered software, internet services, tech companies. The line between tech/non tech gets blurred since I'm sure more companies have software aspects to their business model.
8) Of these companies with >25% CAGRs, about 30 companies had sales >$200M from their base. It's important to note that the companies that had a higher sales base to start were largely not software companies. They were retailers, insurance, and energy companies.
9) I ran another quick screen. There were 1,830 publicly traded companies that had sales >$200M in 2011. Of these, only 8 had a sales CAGR > 35% and 37 had sales CAGR > 25%.
10) Even better data would be to look at sales on a per diluted share basis to consider the sales growth attributable to long-term shareholders since a lot of the high growth tech names pay management and engineers in stock.
11) Main takeaways: It is rare to be able to consistently grow at very high rates for even just one decade. It is harder to compound at such high rates as the sales base becomes larger (obviously law of large numbers).
12) Again, only 8 companies with starting sales >$200M were able to compound >35%, and only 37 at >25%! If current sales are >$200M, it would be a long stretch to expect a company to compound at such high rates, though there are the few exceptions.
13) Software and internet data service companies have a greater ability to scale to larger numbers much faster, but trying to calculate the long-term CAGRs is very difficult. Growth can decelerate from 40%+ to <20% very quickly once end-markets become more saturated.
14) It is more useful to try and back into reasonable expectations of how big a certain company can get based on potential TAM. Obviously there's a lot of room for error in calculating a TAM but,
15) if you can find a winner take most situation in a space that has a very large market, then the winner will likely compound at a high rate for a longer time.
16) The key is picking who the rare winner is and the durability of their advantage/moat. This also helps back into potential profitability at scale which at the end of the day is the question we’re trying to answer.
17) Not all growth is good growth. Growth at any cost will eventually catch up to a company if they can never scale costs and distribute cash to owners.
18) Companies rarely grow in a perfect line up and to the right. They often can grow in fits and spurts. That's why it’s important to take quarterly data with a grain of sale and look at the multiyear trend.
19) A great example would be $TTD whose revenues can scale up and down pretty fast since it is dependent on ad spend quarter by quarter. The more important factors to consider are; will more ad dollars move towards programmatic ad spend over time,
20) how much and when will those ad dollars shift to programmatic, and how will those ad dollars be allocated?
21) Answering those variables and coming to the conclusion that $TTD will be the primary beneficiary of this huge tailwind is key to understanding the investment thesis. Quarter by quarter sales growth can fluctuate but the long-term trend is pretty clear in our opinion.

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More from @SagaPartners

23 Sep
In light of $NKE's strong quarterly report and the fact today is my birthday, I figured there's no better time to reflect on a past investing mistake in $UA. Cheers to keeping us honest!

Here's a little thread on investing mistakes...
1) Because we are working with a very uncertain future and are susceptible to numerous and conflicting biases, identifying investing mistakes is not always obvious. It is not perfectly clear if prior decisions were good or bad just because a certain outcome occurred.
2) Good decisions sometimes result in bad outcomes and bad decisions can lead to good outcomes. Was a poor outcome due to bad luck or making a bad decision? Over time, enough good decisions should lead to good results, on average.
Read 24 tweets
22 Sep
This speech should be read, then reread, until it's etched on every investment manager's brain.

Charlie Munger's "The Art of Stock Picking"
grahamanddoddsville.net/wordpress/File…
"In a long life, you can expect to profit heavily from at least a few of these opportunities if you develop the wisdom and will to seize them, 'surfing' is a very powerful model."
Read 4 tweets
21 Sep
A few notes on patient and focused investing.

1) The enemy of investment success is activity. It’s normal to associate activity with progress and to feel the need to do something all the time.
2) However, the actual important action happens below the surface of a portfolio through constant reading, learning, thinking, analyzing, and preparing for the moment when a great opportunity presents itself.
3) The major advantage one has investing in the stock market is the ability to patiently wait for the “fat pitch down the middle” opportunity. There is no requirement or reason to try anything overly difficult or reaching beyond one’s strike zone.
Read 14 tweets
18 Sep
A few notes on market timing.

1) Over the last 30 yrs, the S&P provided a 10% CAGR. This generating enormous wealth for those who participated despite including 4 recessions, of which included 2 of the great market bubbles of the past century and a global pandemic.
2) Despite this highly favorable result, very few investors fully participated. Equity fund investors underperform the market by a huge margin. Blackstone produced a report in which they showed that even though the average equity mutual fund in the U.S. averaged 8.2% annually,
3) investors who invested in these funds averaged only 2%. Another study showed the average equity investor return has underperformed the market by over 4% annually. These significantly lower returns are largely a result of the natural human tendency to chase performance,
Read 19 tweets
16 Sep
@richard_chu97 brought up some great points about valuation. The original thread simply looked at sales fundamentals and the number of companies that were able to maintain high sales growth rates for the past decade.
2) In investing, forecasting a company’s future fundamentals is only the first step, the second is calculating the price you are willing to pay today in exchange for ownership of those expected future fundamentals.
3) The value of any asset is the net cash that is returned to the owner over the asset’s life. As a shortcut, people often use multiples relative to recent fundamentals as a proxy for valuation.
Read 35 tweets
13 Sep
Really well-written article by @trengriffin from 2018 on , analyzing it from a SaaS perspective.

25iq.com/2018/03/10/pel…
In his famous 1994 interview in Playboy magazine Bill Gates described why moats are so important in this way by commenting on a specific example: “What is the scarce resource? What is it that limits being able to get value out of that infinite computing power? Software.”
Software/SaaS has increasingly assumed the top dog role in creating significant profitability, especially in the start-up world because it is network effects (demand side economies of scale) that create the most meaningful barriers to entry in today’s economy.
Read 5 tweets

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