Maybe it’s time to start worrying about tech stock valuations. An analyst note dismissed the usual issue of my warning: On Wednesday, Goldman Sachs upgraded Palantir Technologies from Hold to Buy, while doubling its stock price target to $ 34.
Not that I am concerned about the Palantir industry; I see real value in the company’s big data analytics platform. But Goldman’s report captured the market’s current philosophy around valuation, which is fundamentally to ignore.
The investment bank argues that
Palantir
(ticker: PLTR) deserves to trade according to other fast-growing companies. And Goldman reveals that companies that are growing revenue at a rate of more than 30% per year are currently trading at 44 times the sales of 2021. That multiplayer will get you to a price $ 34 on Palantir shares. Keep in mind that the stock opened in September last year for trading at just $ 10 after listing just on the New York stock exchange.
Reading a Goldman note, I broke into a cold sleep. The valuation strategy does not address an obvious question: Should software stocks, or any stock for that matter, trade at 44 hours before sale? As a point of reference, the Nasdaq-100 index will get just five sales in 2021.
Using FactSet screening tools, and widening the window a bit, I found dozens of stocks trading at more than 35 times the sales estimates for the 2021 calendar. The list on this page shows the peak times, including many of the biggest winners of 2020:
Avalanche,
C3.ai,
Zoom video communication,
Fiverr,
Shopify,
and
Cloudflare.
I’m not the only one who is starting to have doubts about the highs and lows. Market sentiment on technical earnings indicates that doubts are mounting.
Zoom Video (ZM) is down 12% from reporting earnings in October on December 1, and is off 30% from its peak. It still trades for 36 hours onward sale. Investors are worried that growth will slow when the pandemic declines 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. Last week the e-commerce software company posted revenue growth of 94% in the December quarter, while small businesses tore up online storefront. But Shopify also said that the midline mainline will grow in 2020 when the pandemic comes down.
Going into the earnings report, Shopify shares had risen almost 30% year to date, more than tripling since the end of 2019. Last week, however, investors did not attention to the earnings blow, and the stock moved 2% lower. With shares trading at 44 hours of sale, the valuation still appears to be under pressure. If you valued it
Amazon.com‘s
(AMZN) revenues at the same multiple forward sales, the company was worth more than $ 20 trillion.
Fiverr (FVRR), which operates an online marketplace for free lancers, posted fourth-quarter sales of $ 56.7 million, up 89%, and predicts 2021 sales of $ 280 million, up 48% . Fiverr sections were still appearing on the news – and why not?
Fiverr has accumulated 1,200% since the end of 2019 and 57% year to date. Surprisingly, some of the recent rise seems to be related to the company ‘s decision to kiss for the Super Bowl ad. Fiverr has accumulated more than 30% since plans for the ad emerged in mid-January, strengthening its market cap by $ 2.6 billion. The ad spot cost Fiverr $ 8 million. (Ask Pets.com how the Super Bowl ad in January 2000 worked.)
Many of these technical stocks are so expensive that even a large sale has not done much to check their valuations.
Snowflake (SNOW), the cloud-based database software company, trades for nearly 80 times sales for the calendar year 2021, and that’s with the stock down 32% from its December high of $ 429. At a current price of around $ 300, the stock is still almost three times its $ 120 public offering price just last September. The company will report earnings on March 3rd.
And that brings me back to Palantir. The stock jumped 15% on Friday, to $ 29, but that’s just after a six-day losing streak in which it lost 35%, despite a Goldman update.
The company’s latest earnings report showed strong demand from government clients, but a disappointment of commercial growth. At the same time, when mail-order locks were removed, many employees and early-stage investors allowed their shares to sell – it wasn’t a terrible idea with what the stock has moved.
In November, I filed a bullish case for
Micron technology
(MU). As I said then, 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. It has already risen 57%, to $ 91 recently. Last week, Citi analyst Christopher Danely wrote that with memory supply tightening and prices rising, profits should explode, from an estimated $ 3.62 share in fiscal year August 2021, to $ 10.64 in fiscal 2022, and $ 15.83 in fiscal 2023. And the stock? He thinks he could hit $ 150.
I have also been consistently on the go
SoftBank
(SFTBY) – in this column and elsewhere in Barron’s—And over time it has proven to be the right call. There were dark moments in the spring of last year when the stock was cut in half. But a combination of asset sales, repurchases, and better performance for the $ 100 billion SoftBank Vision Fund has turned things around. Now the Vision Fund is ready for the biggest exit yet.
Coupang, a Korean e-commerce giant, has filed for a US IPO. SoftBank owns 37% of the company. With a relative income to
eBay
(EBAY) but growing 90%, count on high valuation. SoftBank could be worth $ 20 billion or more.
Last week, SoftBank shares set a new high, quadruple from the lows in March. With a package full of IPO candidates, the stock could keep rising.
Write to Eric J. Savitz at [email protected]