Yes, a very valid predicament @IrnestKaplan especially with the current valuations.
SW/SaaS Companies usually have few advantages.
-A very high Gross Margin that affords them to spend in other areas.
-No Debt (or very low amount) saving them the interest.
SW/SaaS Companies usually have few advantages.
-A very high Gross Margin that affords them to spend in other areas.
-No Debt (or very low amount) saving them the interest.
https://twitter.com/IrnestKaplan/status/1322738593723461632
However careful evaluation has to be done if the ongoing expenses for
-R&D is resulting in great Products/Services widening their Market leadership.
-S&M is resulting in acquiring higher value Customers, lowering churn and increasing stickiness.
-G&A is trending down with scale.
-R&D is resulting in great Products/Services widening their Market leadership.
-S&M is resulting in acquiring higher value Customers, lowering churn and increasing stickiness.
-G&A is trending down with scale.
The company has to be trending towards Market leadership in an important and growing TAM, while the Management is executing well and building some type of moat.
In these cases, at some point the operating margins and FCF/Sales for good businesses could reach 25% or more.
In these cases, at some point the operating margins and FCF/Sales for good businesses could reach 25% or more.
If we are not making these assumptions (or they turn out to be grossly over-estimated, possible scenario for many Co's due to Competition or Technology changes), or not focusing enough on the quality/longevity of the specific Company....
...paying 20-30 times Sales is just playing a game of greater fool theory, which will mostly result in a bad outcome.
/END.
/END.
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