Post #21 by MisterFungi on the Software as a Service Gems board

Investment Strategies / Software as a Service Gems

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I've never seen a really good way to assess value. DCF is probably the best, but it depends on inputs that you can't know (so you have to guess/estimate). If your inputs are off, your valuation will be off.

True. But you can run the DCF "backwards," too: i.e., what revenues, net margin, share count, and P/E would be required (say) 3 or 4 or 5 years from now in order to make the stock at today's price even remotely plausibly a decent investment? Simple math shows that even hyper-growth companies with (someday) fat margins don't make sense when they trade at 30x, 40x, 50x revenues, irrespective of macro considerations. A brief discussion along such lines would have saved a lot of relatively new investors a lot of pain. I tried, politely. My posts got deleted.

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