Traditional meters are not always superior when valuing a fast-growing company. That’s especially true when profits tend to come and go, as these companies invest heavily to ensure future growth. Are there metrics that might be useful in evaluating these fast-growing companies?
On this program of Amadan Beò airing on November 18, “The Wrap” hosted Jason Hall and Fool.com donors Danny Vena and John Maxfield discussed one such company and a metric or two that will help give the audience a look. that high-altitude aircraft.
John Maxfield: I’d like to do this, here ‘s a question – maybe because it’s a question for Danny.
Jason Hall: I like it.
Danny Vena: Of course.
John Maxfield: Question to Danny from Tony E, “What evaluation metric do you look for when looking to add to your MELI setting?”
Jason Hall: MecardoLibre (NASDAQ: MELI).
John Maxfield: MercadoLibre setting.
Danny Vena: Overall, since this stock I have been following for so many years, I have been there for ten years now. First what I did, and to be honest, I didn’t follow a lot of metrics, is what I would buy in any major drop in the price of the stock. The reason I did that is because I am looking at the long-term opportunities for this business. I wasn’t too worried about buying at a particular metric or trying to reach a specific settlement goal.
What I am looking for is buying, net income is going up all the time, income is going up all the time. What I do is when the stock price falls, I usually get a better value point. But if it’s something you’re interested in watching, I’d say you’ll see the price-to-sale ratio. Because MercadoLibre has been one of those companies that has not consistently received employment because they are plowing so much of their profits back into the business. I would look for dips in the price-to-sale ratio and I can’t tell you off the top of my head what that is. But I mean, if you go in and look at his card, it’s pretty obvious. With stock price declines of 25% to 40%, these have happened frequently over the last decade, that has been a good time to buy the stock.
Jason Hall: I’ll add one more thing in there that I’ve started paying a little more attention to with MercadoLibre. I was just talking about an interior NV5, and that works money, Since MercadoLibre, they have recently revealed GAAP profits and it seems that those GAAP profits could go away because they just want to continue collecting more money in to the growth of the business, which is going to increase some of its costs on a non-monetary basis that can make a loss, GAAP employment does not look good. But this year, I think, is just a good example. This year, operating income is 12-months working. Over the last four quarters, operating income has increased 123%. The stock price has gone up by about 140%. The stock price may not have crossed the company’s growth path.
Danny, I think you would agree that this is one of those businesses that is growing in scale, as we saw with Amazon a few years ago, because its all the talk about Amazon never making money. They will never be profitable. Then, they get to this kind of emergency. Then, boom, they start to embark on those grim cash flows. I think the story of MercadoLibre will be very similar. I think operating cash flows are going to look at this more than GAAP net income because of the impact of non-cash costs on the net income line.
Danny Vena: I think, too, that the company seems to be heading towards a point and they are not there yet. Amazon certainly isn’t, but at some point in the future, MercadoLibre is going to reach a point where they are making more money than they can reinvest back into their business. As soon as that happens, I think what you are going to see is the same explosion of cash flow that Jason is talking about. I also think the company is going to reverse its split in 2018, which I look forward to.
Jason Hall: There is a lot of potential. This could be the best non-installment stock payout.