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QuestionsCategory: Valuation QuadrantModule 6: The Valuation Quadrant
yoga asked 1 year ago

Hi Victor, may i check with you which metric (or a combination of metrics) is suitable for Sass companies?
Is there is difference metric to use between:

  1.  Negative net profit + positive OCF
  2. Negative net profit + negative OCF
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Jieren Zheng replied 1 year ago

I am learning how to value or analyse them too. I would think using sales + sales growth is another important aspects to see.

So maybe price to sales would work too.

yoga replied 1 year ago

Hi Jieren, any idea what ball park Price to sales do you use for Sass? The module content example was products like nestle. I was wondering, if software services had a different benchmark for gauging undervalued?

Jieren Zheng replied 1 year ago

The closest I got was peer comparison (similar companies doing similar services in other exchanges) as well as the historical P/S ratios of the counter.

yoga replied 1 year ago

Thanks Jieren!

Victor Chng replied 1 year ago

Thanks JR

1 Answers
Victor Chng answered 1 year ago

Hi Yoga,
1.If the company have positive cash flow then you can value using POCF
2.For those lost making and operating cash flow negative, as what Jieren had mentioned, you can use Price to Sales. Comparing with peers is one way to gauge the benchmark but in the end it all about understand the company total addressable market (TAM). If the company have a long runway for TAM, even at high valuation, you can still get multi-bagger but of course you are taking a risky bet here too. So you have to size your position properly.