This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Affirm Holdings (NASDAQ:AFRM) jumped 14.8% in Monday’s trading session, according to data from S&P Global Market Intelligence. The fintech stock gained ground following news that Square (NYSE:SQ) would be acquiring Afterpay (OTC:AFTP.F) in an all-stock deal valued at approximately $29 billion.

AFRM data by YCharts

Square published a press release on Aug. 1 announcing that it would be acquiring Afterpay, a competitor in the buy-now, pay-later category that Affirm Holdings operates in. It looks like demand for the service category is heating up, and investors poured into Affirm Holdings stock in response to the big buyout news.

So what

Square’s acquisition of Afterpay is expected to close in the first quarter of 2022. This fintech power player’s acquisition of the Australia-based buy-now, pay-later specialist could result in a tougher competitive landscape. However, the market mostly appears to be reading the move as an affirmation of Affirm Holdings’ positioning for growth and the untapped value in the broader service category. Square stock also closed the day up roughly 10.7%.

Now what

Square’s acquisition of Afterpay boosts Affirm Holdings’ visibility as a potential buyout target, though the company doesn’t necessarily need to look for large-scale merger opportunities in order to remain competitive. Mobile-focused payment and financing services have seen huge growth over the last decade, but the market for these services still has big room for growth in the U.S. and other regions, and it should be able to support a breadth of winners across a variety of service categories.

Affirm Holdings now has a market capitalization of roughly $17.1 billion and is valued at approximately 15 times this year’s expected sales.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here’s why Affirm holdings was up big on Monday appeared first on The Motley Fool Australia.

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• Why the Afterpay (ASX:APT) share price is in the green today
• Afterpay (ASX:APT) share price is higher despite the sharp ASX 200 selloff
• As markets fall, big business fights back against disruptive growth stocks
• Why the Afterpay (ASX:APT) share price is crashing 9% on Wednesday
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Keith Noonan has no positions in any stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Affirm Holdings, Inc., and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The NEXTDC Ltd (ASX: NXT) share price will be on watch later this month when it releases its full year results.

Ahead of the results release, I thought I would look at what the market is expecting from the data centre operator.

What is expected from NEXTDC in FY 2021?

Another strong full year result is expected from NEXTDC in FY 2021. A note out of Goldman Sachs reveals that its analysts are forecasting:

• Data Centre Revenue growth of 24% to $250 million. This compares to its guidance of $246 million to $251 million.
• Earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 26% to A$132 million. This compares to its guidance of $130 million to $133 million.
• A net loss after tax of $5 million.
• Capital expenditure of $393 million.
• Customers of 1,564, cross connects of 14,965,000, and contracted capacity of 75MW.

What else should investors look for?

Given how much growth is built into the NEXTDC share price, its outlook for FY 2022 will be of great importance.

Goldman Sachs is forecasting FY 2022 revenue of $298 million and EBITDA of $165 million. This is broadly in line with the market consensus estimate for the year ahead.

The broker has also pencilled in capital expenditure of $331 million. This includes $171 million on the S3 centre and $75 million on the M3 site.

Is the NEXTDC share price in the buy zone?

The team at Goldman Sachs remain very bullish on the NEXTDC share price.

At present they have a conviction buy rating and $14.80 price target on its shares. This implies potential upside of 12.5% over the next 12 months.

The broker commented: “We remain high-conviction on the growth profile ahead, forecasting +37MW contract wins across FY22-23E (=65% conversion of options). Combined with recent share price underperformance, this gives an attractive growth adjusted valuation. We reiterate our Buy (on CL) on NXT, the most compelling growth story in our coverage.”

The post Is the NEXTDC (ASX:NXT) share price in the buy zone before its FY 2021 results? appeared first on The Motley Fool Australia.

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• 3 ASX 200 shares named as buys

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Westpac Banking Corp (ASX: WBC) share price is in negative territory on Tuesday morning. This comes after the banking giant announced an update to the sale of one of its finance businesses.

At the time of writing, the bank’s shares are fetching $24.85, down 0.72%. In comparison, the S&P/ASX 200 Index (ASX: XJO) is sitting at 7,472 points, down 0.25%.

Westpac sells vendor finance business

According to the release, Westpac has completed the sale of its vendor finance business, Strategic Alliances, to Angle Finance.

Strategic Alliances supports third parties to fund small-ticket equipment finance loans for approximately 42,000 Australian businesses.

Based in Melbourne, Angle Finance is a non-bank asset finance company that services small and medium-sized enterprises. The business specialises in offering equipment finance of up to $200,000 for transport, construction, materials handling, and earthmoving equipment.

The transaction resulted in the transfer of roughly $500 million in customer loans to Angle Finance. However, the size of the portfolio means the sale will have little impact on Westpac’s balance sheet and capital ratios.

Westpac realised a small accounting loss on the sale in FY20. This was due to the transaction being structured with an initial payment on completion, followed by a deferred consideration payable over a two-year period.

Westpac also recently sold its vehicle dealer finance business to Angle Finance. This also resulted in a fall in the Westpac share price.

The vendor finance business previously operated out of Westpac subsidiary, Capital Finance Australia. Despite the sale, the bank will continue managing its remaining Capital Finance Australia equipment finance business.

Westpac chief executive of specialist businesses and group strategy Jason Yetton commented:

Westpac is pleased to have successfully executed the transaction which will help Australian businesses continue to finance small-ticket equipment loans to grow and be successful and help us become a simpler bank.

About the Westpac share price

Over the past 12 months, Westpac shares have accelerated by more than 50%, with year-to-date gains almost at 30%. The company’s share price reached a 52-week high of $27.12 in June, before slightly treading lower.

Westpac commands a market capitalisation of roughly $91.8 billion, and has over 3.6 billion shares on its registry.

The post Westpac (ASX:WBC) share price lower after sale of finance business appeared first on The Motley Fool Australia.

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• Own Westpac (ASX:WBC) shares? What to look for during reporting season
• The Westpac (ASX: WBC) share price is down 20% in 5 years. But have the dividends paid off?

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Fortescue Metals Group Ltd (ASX: FMG) share price has delivered outsized returns over the previous 12 months.

Whereas the S&P/ASX 200 Index (ASX: XJO) has posted a return of around 23%, Fortescue shares have soared 36.5% into the green.

Despite this, Fortescue shares have lagged the broad index this year to date, posting a return of only 4%.

So is it a bad time for Fortescue Metals shares?

According to one leading broker, thankfully, this may not be the case.

An equity research report from JP Morgan reveals the investment bank still holds its conviction on Fortescue shares, reinstating a price target of $30 and overweight rating.

This price target implies an upside potential of approximately 22% from Fortescue’s current trading price of $24 and change.

Fortescue Metals also paid a dividend of $1.20 per share over the past 12 months, giving a dividend yield of 3.47% at the time of writing.

Therefore, it stands to reason that JP Morgan believes the Fortescue Metals share price has more room to run just yet.

What did JP Morgan say?

Analysts at JP Morgan were pleased with Fortescue’s “outstanding set of (Q4 FY21) results” that encompassed “record achievements, achieved price and in line costs”.

Additionally, Fortescue’s net cash position “materially exceeded our [JP Morgan’s] expectations and consensus”.

This also weighed in on the broker’s investment thesis. It stated that Fortescue “offers exposure to long-life operations, with attractive margins and expansion optionality over the long term”.

The broker also retained its “positive investment view” on the company from a number of tailwinds.

It stated: “Our FY22 earnings sit 16% above consensus…We continue to believe iron ore markets will remain buoyant on a multi-year view, and that the [Fortescue] stock can re-rate to reflect the company’s outstanding FCF generation”.

Bringing it all together, JP Morgan sees a robust investment case for Fortescue Metals shares.

Its final view on the company is “overweight rated on a sector-leading dividend yield, strong iron ore market conditions, significant mark-to-market upgrades” and attractive upside potential from its price target of $30.

Foolish takeaway

The Fortescue Metals share price has underperformed the broad index this year to date, although has delivered outsized returns over the last 12 months.

Despite this, Fortescue shares dipped 4% into the red over the past week.

JP Morgan retains its bullish outlook on Fortescue’s shares, assigning a price target of $30 based on its Q4 FY21 results. They maintain their overweight rating.

The post This leading broker believes Fortescue Metals (ASX:FMG) shares can lift appeared first on The Motley Fool Australia.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Motley Fool Australia Chief Investment Officer Scott Phillips joined Nine’s Late News on Monday night to discuss a huge day of takeovers, including Afterpay Ltd (ASX: APT), Square Inc (NYSE: SQ), Oil Search Ltd (ASX: OSH) and Santos Ltd (ASX: STO). Plus, house prices through the roof, and focus turns to Tuesday’s RBA interest rates decision.

The post Afterpay share price surges on takeover. Oil Search, Santos do a deal. Scott Phillips on Nine’s Late News appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Square, and Twitter. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Paradigm Biopharmaceuticals Ltd (ASX: PAR) share price is under significant pressure on Tuesday morning.

At the time of writing, the biopharmaceutical company’s shares are down 14.5% to $1.90.

This decline means the Paradigm share price is now down 35.5% over the last 12 months.

Why is the Paradigm share price crashing?

Investors have been selling down the Paradigm share price on Tuesday following the release of an update on the Investigational New Drug (IND) application it submitted to the US Food and Drug Administration (FDA) in March.

As you might have guessed from the weakness in the Paradigm share price, the update was not an overly positive one.

What’s been happening?

In June, Paradigm submitted a response to the FDA’s six questions relating to Paradigm’s IND submission.

According to today’s announcement, the company has now received a written response from the US FDA. This reveals that the regulator has accepted Paradigm’s responses to five of its six questions.

As a result, the FDA requires further clarification on one remaining question. This is in regard to the non-clinical interpretation and clinical mitigation relating to one of Paradigm’s recently completed GLP non-clinical toxicology studies.

Paradigm notes that it conducted 26 non-clinical studies in 2020 at the request of the US FDA. Of the 26 non-clinical studies conducted, the FDA is seeking clarification on only one rat study.

Paradigm will now work with expert clinical and non-clinical consultants to prepare a response. It anticipates this will be submitted within a month.

Paradigm’s Chief Medical Officer, Dr Donna Skerrett, remains optimistic that this outstanding question can be resolved.

She explained: “For new indications that impact large populations, such as osteoarthritis, a thorough and iterative process with the FDA for initiating the pivotal registration studies is common practice. Even though the pace of progressing the clearance process has been slowed due to COVID-19 resulting in all communications being written, we are confident that we can address the FDA’s one remaining question. We look forward to resolving the one outstanding question with the FDA and moving froward with our pivotal program in the US, Europe and Australia.”

However, judging by the Paradigm share price performance today, some investors aren’t as confident as the company is.

The post Why the Paradigm (ASX:PAR) share price is sinking 14% on Tuesday appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon (NASDAQ: AMZN) stock tumbled Friday after the company missed revenue estimates and surprised the market by calling for much slower revenue growth in the third quarter.

Management expects the top line to increase just 10%-16% in the third quarter, a clear sign that the pandemic bump has ended and that the tech giant will now face difficult comparisons over the next few quarters. While that was the main takeaway from the report, there are some other key pieces of information that investors should be aware of.

Demand is still outstripping capacity

Amazon has made a huge investment over the last year to expand its capacity by adding fulfillment centers and ramping up hiring. After the last four quarters, the company has spent a whopping $52 billion in capital expenditures, which may be a record for any business, and has added 460,000 new employees.

However, that still doesn’t seem to be enough, as the company is hustling to add more capacity in the second half of the year even as its year-over-year growth rate has slowed. In response to a question about per-unit fulfillment costs on the earnings call, CFO Brian Olsavsky said, “It usually takes a multiyear period to tame those assets. And we’ve literally nearly doubled our network here in the last 18 months from a size standpoint.”

Prime membership surged during the pandemic, which will boost long-term demand, but it also strains Amazon’s logistics network further as the order minimum for free shipping on non-Prime orders no longer applies for those customers. Olsavsky acknowledged on the earnings call that the company’s one-day delivery percentage had dropped and had not yet returned to pre-pandemic levels.

High demand is a good problem to have for Amazon, but it also means that the investment cycle it began last year still has a long way to go.

Amazon is feeling the labor shortage

In addition to capacity constraints, Amazon is also getting squeezed by the labor shortage. Olsavsky commented:

The other thing is wage pressure has become evident. We’ve talked about this a bit. The wage increase for — that we normally would do in October, we pulled forward into May. We’re spending a lot of money on signing and incentives. And while we have very good staffing levels, it’s not without a cost. It’s a very competitive labor market out there. And certainly, the biggest contributor to inflationary pressures that we’re seeing in the business.

The company expects that pressure to continue as it ramps up hiring in the second half of the year toward the holiday season. Higher wages and a tight labor market could squeeze profits as Olsavsky’s comment about inflationary pressure indicates. For the third quarter, Amazon guided for operating income to be down from a year ago, at $2.5 billion-$6 billion, down from $6.2 billion in Q3 2020.

Separately, a New York Times investigation in June reported that the company’s turnover rate is so high, with the average warehouse worker staying just eight months, that some execs worry it will run out of potential hires. That challenge may explain Jeff Bezos’ promise to do better by his employees in his final shareholder letter as CEO.

The international biz is out of the red

For a long time, Amazon was burning cash in its international e-commerce segment as the company built out infrastructure around the world. It seemed reasonable to question whether the company would ever make a profit outside of North America, especially as it had taken a long time for North American e-commerce to become a cash generator.

However, that no longer seems like a concern. Amazon just completed its fifth straight quarter of profitability in the international segment, bringing in $362 million in operating income on $30.7 billion in sales. For the first half of the year, it’s already made $1.6 billion outside of North America.

Older markets like the U.K. and Germany have long been profitable, and the company seems to be reaching a critical mass of Prime members across its international territories, which are more profitable for the company at scale. Olsavsky explained that two years’ worth of international growth had been brought forward on the same base of assets, driving profitability. The company continues to invest, recently making Portugal the 22nd country with Prime, and is focused on building out its network in the developing world, including Brazil, India, and the Middle East.

While international operating income is likely to remain volatile, the doubts about Amazon’s ability to turn a profit have been put to rest.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 things you missed in Amazon’s earnings report appeared first on The Motley Fool Australia.

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Jeremy Bowman owns shares of Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The PointsBet Holdings Ltd (ASX: PBH) share price has returned from its trading halt and is tumbling lower.

In early trade, the sports betting company’s shares are down 12% to $9.93.

Why is the PointsBet share price tumbling?

The catalyst for the weakness in the PointsBet share price on Tuesday has been the completion of its institutional entitlement offer.

According to the release, the company has raised $81 million via a 1 for 9 fully underwritten pro rata accelerated renounceable entitlement offer. This offer was strongly supported by Australian and international institutional shareholders.

These funds were raised at a 29% discount of $8.00 per share. In addition, the institutional shortfall bookbuild then cleared at $10.00, which is a 25% premium to the entitlement offer price.

In respect to the latter, the eligible institutional shareholders who did not elect to take up their entitlements (and ineligible institutional shareholders) will receive $2.00 for each entitlement sold through the auction.

What’s next?

The company will now push ahead with its institutional placement to raise a further $215.1 million at $10.00 per new PointsBet share.

After which, it will undertake a retail entitlement offer at $8.00 per share. This will bring the total raised to $400 million.

Why is PointsBet raising funds?

PointsBet is raising funds to support its North American marketing and client acquisition, technology and product development, US market access and government licensing fees, and its investment in talent and the scaling of its operations.

PointsBet’s Managing Director and Group CEO, Sam Swanell, commented: “Since inception, PointsBet’s Board and management have been working to establish and consolidate the key building blocks that have put us in the strong position we are today to pursue the expansion of the North American sports betting and iGaming opportunity.”

“Today, in addition to our profitable Australian business, we have live operations in 6 US States with iGaming live in two of these states. By December 2022 we plan to be live in at least 19 North American states or provinces. The North American sports betting and iGaming market could be a US$54bn revenue opportunity by 2033 and our strategy is to continue to invest to become a top 5 player in this market, targeting a 10% market share in all key North American jurisdictions. The Capital Raising will position PointsBet to execute this strategy,” he added.

Despite today’s decline, the PointsBet share price is still up more than 100% over the last 12 months.

The post Why the PointsBet (ASX:PBH) share price is crashing 12% lower on Tuesday appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Credit Corp Group Limited (ASX: CCP) share price is on the move on Tuesday morning following the release of its full year results.

At the time of writing, the receivables management company’s shares are up 6% to $30.21.

Credit Corp share price up 6% after achieving FY 2021 guidance

• FY 2021 net profit after tax increased 11% increase in net profit after tax to $88.1 million.
• US-based net profit after tax doubled to $17.7 million.
• Near record purchased debt ledger (PDL) investment outlay of $293 million.
• Record second half gross lending volume of $105 million and record committed FY 2022 starting PDL investment pipeline of $150 million.
• Final dividend of 36 cents per share, bringing its full year dividend to 72 cents per share.

What were the drivers of this result?

According to the release, Credit Corp overcame challenging market conditions across all segments to deliver a profit after tax in line with its guidance of $85 million to $90 million.

A key driver of this was its ANZ PDL collections, which came in within 4% of FY 2020’s stimulus-induced result. This was achieved with limited organic purchasing as a consequence of reduced PDL supply arising from the temporary impact of COVID stimulus and forbearance on charge off volumes.

The result was also boosted by the acquisition of the Collection House PDL book. This helped drive improvements in segment productivity and earnings.

What did management say?

Credit Corp’s CEO, Thomas Beregi, was pleased with the company’s performance and the success of its Collection House PDL book acquisition.

In respect to the latter, he said: “We used our analytical ability to provide a great price, our operational capability to promptly integrate and uplift collections from the largest individual PDL transaction in Australian history and our financial capacity to secure timely completion of the opportunity.”

Mr Beregi also spoke positively about its US operations and believes they will be a key driver of future earnings growth.

“Our tightly integrated US platform has the operational effectiveness and infrastructure required to achieve, and surpass, our medium term objective of $200 million in annual US PDL investment,” he said.

Outlook

Also giving the Credit Corp share price a boost today is management’s commentary on the year ahead. It notes that it enters FY 2022 with considerable momentum, having invested heavily during FY 2021.

As a result, it is guiding to net profit after tax of $85 million to $95 million. This represents a 3.5% decline to 7.8% increase on FY 2021’s net profit of $88.1 million.

The post Credit Corp (ASX:CCP) share price charges 6% higher after strong FY 2021 result appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• 3 intriguing ASX shares to buy before reporting season
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• Why Credit Corp, Oil Search, Pilbara Minerals, & PointsBet are charging higher

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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A growth stock in our portfolio that multiplies 10 times in value is what we all dream of.

A rocket like that can make up for losses in other shares, plus leave plenty for you to pocket. You can own five other growth shares that are $0 losers, but you’d still have doubled your money!

But those 10-baggers, and indeed 5-baggers, are difficult to pick.

If it were easy, everyone would be doing it.

Conventional analysis just doesn’t cut it for 10-baggers

“If investors cast their eyes back over the last two decades, it’s obvious the stock market’s massive winners and 10-baggers – the likes of Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL) and Afterpay Ltd (ASX: APT) – have always looked overvalued and uninvestable based on conventional valuation methods,” read a memo from Ophir Asset Management.

“Many investors wielding traditional valuation tools shunned these stocks and missed out on staggering returns.”

The trouble is that these future 10-baggers are usually early-stage companies. And those growth shares usually don’t have enough history to evaluate them via traditional metrics.

“Many of the stock standard valuation metrics such as price-to-earnings (P/E) ratio or price/earnings to growth (PEG) can be completely useless when analysing immature companies,” stated the Ophir investment strategy note.

“Without years of financial data to rely on, early-stage companies and their investors must employ more creative ways to substitute these inputs.”

The Ophir team took Afterpay to demonstrate why conventional metrics fall over for many growth shares.

“How can it be valued so high when it doesn’t make a profit?… Our answer is simple: Afterpay’s valuation, such as its P/E, is so high because it is deliberately keeping the ‘E low to non-existent by reinvesting for future growth.”

So how do we measure the worthiness of early-growth companies? How can we find our next 10-bagger?

Ophir suggested four ways investors can increase their chances of landing one of these beauties.

What does this growth stock actually own?

The Ophir team suggested “identifying assets” as one way to validate how an early-stage business compares to its peers.

“You list the company’s assets which could include proprietary software, products, cash flow, patents, customers/users, or partnerships,” the memo read. 

“Although you may not be able to precisely determine (outside cash flows) the true market value of most of these assets, this list provides a helpful guide through comparing valuations of other, similarly young businesses.”

Seek alternatives to revenue

Revenue growth is certainly important, but it might not be enough to understand the potential of the business.

“In addition to (or in place of) revenue, we look to identify the key progress indicators (KPIs) that will help justify the company’s valuation,” the memo read.

“Some common KPIs include user growth rate (monthly or weekly), customer success rate, referral rate, and daily usage statistics.”

The team admitted finding these other measurables can sometimes be difficult.

“This exercise can require creativity, especially in the start-up/tech space.”

Are returns greater than capital costs?

The answer to this may seem obvious but can get lost in the fervent search for the next hot growth stock.

Growth can only happen if the return on capital is positive.

“A key element in determining the quality of growth is assessing how much the firm reinvests to generate its growth,” the Ophir report stated.

“For young companies, reinvestment assumptions are particularly critical, given they allow investors to better estimate future growth in revenues and operating margins.”

Change in wind direction

Companies starting out in their journey can have their fortunes made or broken from certain events.

So the Ophir team recommends keeping an eye on the possibility of coming catalysts.

“When a young company achieves significant milestones, such as successfully launching a new product or securing a critical strategic partnership, it can reduce the risk of the business, which in turn can have a big impact on its value,” the memo stated.

“Significant underperformance can also result when competitive or regulatory forces move against a company.”

The post Here are 4 sure-fire ways to catch the next 10-bagger appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo owns shares in Afterpay, Alphabet and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), and Netflix. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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