When the stock based comp ends, it most likely will have to replaced with cash comp to satisfy the engineers? What do you wall street savants think? Lets keep the debate civil.
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Use adjusted EPS.
Don’t really GAF. If they gonna beat earnings and raise = buy. If miss and cut = short. Follow the revisions and stop the valuation, business quality, mgmt crap.
Even as someone who works in a higher velocity model I just can’t agree. I liken the short termist revisions framework to the “voting machine” view of the market. But the market is also a weighing machine (mgmt quality, quality of business, etc)
both are important. Both are ways to make money. To dismiss one or the other is ignorant in my view
Yeah - good short-term fundamental analysts understand ‘short-term’ really means:
- over the next 10-200 days what will happen [you can’t stop here]
- how will those events change the markets perception of long-term earnings power and valuation
you still care about long-term valuation/earnings power, but you specially care about being bigger in the stock when events are changing that view
Lotta people don’t get this and being momo or value die-hard works until the cycle turns and then a whole bunch of people get washed out
You're not totally wrong. There is the "true" and "academic" interpretation of what happens to value when you are dealing with SBC, and then there is the reality of how the market weighs things in real time. At the end of the day, it is a mix of all approaches anyways. Quick and dirty says if the prevailing way of the market is looking at adj. EPS and multiple, I would use that - since we are all just playing inflections in perception, it doesn't matter. You can spend time adjusting your DCF to factor in the cash cost of buying back shares or forecasting dilution, but that ends up being bad input=bad output. Accuracy doesn't matter. Better to be directionally correct than exactly wrong or whatever.
If you see that SBC is going to be massive, it is telling you something about the future of this business - maybe it is showing they are spending much more to generate the same revenue growth and that is always worth investigating. Leverage a mix of valuation strategies, its all just ranges of risk/reward and perception changes at the end of the day, and that matters more than anything else.
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