and when a shares goes down it is always 'profit taking' eh for want of any other explanation
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I've actually tried to get some work done today. Last time I checked you're allowed to express an opinion, positive, negative or objective. Some value all intelligent input and some take a more objectionable tone when it doesn't line up with thier way of thinking and can't handle rational objective debate, without playing the person not the issues, that's what's truly sad...
Eureka... I have found a valid, company specific announcement for yesterdays sell off. nothing to do with fear, greed, hype, just pure old change in metrics :P... http://www.stuff.co.nz/technology/di...ternet-freedom
It's an interesting comparison with Google, anyway.
Revenue $14893 million (USD)
Market Cap $336810 million (USD)
=>Market Cap 22.6x Revenue
Xero
Revenue ~$60 million (NZD)
Market Cap $4500 million (NZD)
=>Market Cap 75x Revenue
Hopefully I've got those numbers right. It's pretty rough and dirty, I know, but in the absence of a profit to compare with Google's $2970 million Net profit I thought it was worth looking at.
Xero has a lot of blue sky priced into it. It's a great product, but it's a long way from returning a profit and it's a tough market in the US. $60-odd million in revenue is not really an impressive figure. My own small business turns over about 1% of that, with a much better profit, and yet would sell for about 0.0009% of Xero's market value. Rather poorer growth prospects, mind you :).
I have no doubt there's money to be made in Xero shares at the moment, but it seems a risky business to me. Good luck to all holders.
I have been very curt with my editing above. However, I believe the underlying theme of 'investment good' and 'speculation bad' is behind this summary. I believe the situation is not as black and white as this. Some of my best investment decisions have been made without all the facts, because it is the uncertainty that gives the discounted entry price. Perhaps a hybrid of investment and speculation according to the above definition?
I don't think anyone could have anything but admiration with what Rod Drury has achieved with Xero. By that I mean seeking out powerful investors for new capital to keep him away from the cashflow funding brink. Of course being at the starting end of a global growth curve and managing to execute your business strategy as articulated helps.
By my definition the value of an investment is the present value of the sum of all future positive cashflows. Since Xero has no positive cashflows on the horizon it is by definition not an investment. Whether it is a good speculation is another question entirely. It may just be, but such things are not for me. What is clear is that Xero does not have enough cash to execute their global strategy. Also Xero has a track record of treating small investors poorly, diluting their existing holdings with large new issues of shares.
Don't put more into this than you can afford to lose fellow sharetraders.
SNOOPY
Great post Snoopy. On CNBC last evening they were talking about the Twitter float and its price, which is trading on similar sales / price ratio's as Xero and losing money just as fast, albeit with little apparent idea of how to monetise their business model, (which perhaps makes it an even more expensive stock than XRO) !!
They way they explained it, (which could be something of an insight and partially explain XRO's price), was that Gen X & Y have an almost insatiable desire to be "connected" at all times. Research shows that 85% of these generations take their smart phones to bed with them !! I feel a bit better now knowing my kids wern't dissimilar to others.
I think that gives us older generation people an idea of why the "now" generations want information now and are absolutly desperate to stay connected, they don't want reports next week or next month, they're the "I must have it at my fingertips right now" generations and this perhaps explains some of the drivers behind XRO apparent popularity.
Whether XRO can eventually execute a global stratagy that finally translates into a highly profitable business model that warrants a market capitalisation that by definition must be substaintially higher than its present one as its a long way away in the future, remains to be seen for the reasons you've clearly articulated and the exceptionally high risks involved its not for me either.
Whatever investment stratagy one undertakes it has to be appropriate for your circumstanes. I think for example people in their fifties who are reasonably comfortable might be looking for more stable proven growth investments that will see them through to a very comfortable retirement whereas those in the their twenties or thirties can afford to have a more aggressive statagy knowing if they get a financial belting they've got plenty of time to start over.
Just because the likes of Peter Thiel put money into Xero at $20, doesn't mean you should buy the same thing at $40. I also did not say that all speculation was bad as you implied. My main observation is that the little guy investor in Xero is not on equal opportunity terms with the big guy. IMO that is a bad thing.
SNOOPY
With scenario valuations ranging from $5.80 to $80 I would agree that XRO is one of the highest risk stocks on the NZX, that’s not to say though that it has not been a reasonable investment.
Clearly the returns shareholders have received thus far have balanced the risk endured, whether this continues to be the case perhaps only time will tell as the internal measures of risk for this company are dynamic, the rate of growth of sales, and perhaps more importantly, the rate of growth of gross margins.
If you are a long term investor then your best risk mitigation is diversification, I’ve recently adjusted my investment rules. Previously I had a rule such that I would not invest more than 10% of portfolio into a tech stock. However what I’ve learnt recently from DIL is that one of the greatest risks inherent to tech stocks does not arise from the company itself, it arises from the nature and behaviours of the type of investors that tech stocks attract. I’ve since lowered my diversification rule for tech stocks to 5%.
XRO is a perfectly reasonable long investment provided you actively acknowledge and monitor the risks, mitigate them by whatever means your investment strategy may dictate, and do have a conscious exit strategy.
You removed the context from what I said turmeric. That was my summary of a previous born2invest post, not my opinion.
Peter Thiel sits on the board of facebook, so no doubt has the ability to steer the tiller on his investment in a way the small shareholder cannot. I don't know what percentage of Thiel's wealth is in Xero. If you could find out what percentage of Thiel's wealth was in Xero, then think about retaining that percentage of your own wealth into Xero. That could be a more balanced way forward for the informed speculator.Quote:
So, that being said my point still stands, you are effectively saying that the likes of Peter Thiel, who have put money into companies such as Facebook and Xero have done so based on "emotions fear and greed". Is that not correct?
SNOOPY
When you get a company that apparently breaks all the investment 'rules' of valuation, I think that it is very important that there is transparency in what rules that remain. Uneven issuing of shares to preferred parties will ultimately dilute the returns of the less favoured shareholders.
One day the cashflow from Xero will turn positive, and from that point onwards the historical shareholder structure will determine the return for all shareholders.
SNOOPY