VALUATIONS
Bruce,
Thanks for your follow-up about the PEG. Since you and I are advocates of the Fool and there are many reading these posts who haven't ventured into the art of valuation (No, it's not a science!), I'm going to take your comments one step further if you don't mind.
1) No particular valuation method should be used as the sole reason to buy, sell, short, or cover a position. It must be used in conjunction with other valuation methods AND a thorough understanding of the company's fundamentals.
2) Valuations are best understood in conjunction with comparative results with companies in the same industry, sometimes with companies in different industries. They are also very helpful when today's valuation is compared with previous valuations of the same stock. Unfortunately, there is no place I'm aware of that records historical valuations other than PEs. (I don't know where those sites are but I do know they exist.)
3) The valuation tool that is most "in synch" with Gorilla Gaming is the price-to-sales (PSR) ratio. That's because Gorilla Gaming looks so closely at revenue, as opposed to earnings, as the best measure of product adoption. One would expect the market to pay higher PSRs for companies growing revenues faster, improving net margins, having higher net margins, exhibiting dominance in their industry, etc., etc.
4) The authors of the manual continue to insist that THE best valuation tool for Gorillas and Gorilla candidates is the understanding of where the product is in the adoption life cycle in conjunction with the growth of product adoption, nebulous as it is. Because enabling Gorillas wield more power than applications Gorillas, they imply that we should be willing to pay more for an enabling Gorilla.
--Mike Buckley |
