09-25-2021, 09:59 PM
If it trades over 40X Sales & you also think rate will keep rising. It’s time to S
<!-- SC_OFF --><div class="md"><p>If you agree Real Rates will continue to climb (say the 10 yr reaching 1.75% as it did in March). </p> <p>Then a simple cheap and amazing trade is to simply buy PUTS on any / all your favorite over valued, overhyped not profitable SaaS or other stock to Dec or Jan. </p> <p>Examples; DDOG currently $150 PS over 50X. March price mid $80’s. $110 Dec PUT 24% out of the money goes for $120 (in the money over $1.3K) Notice I didn’t even look for puts in the $80’s or $90’s. You can run this exercise over and over SNOW, DASH, SPT, ASNA, MNDY, S, NET, ZS the list is honestly endless. </p> <p>“Oh there is no way any of these stocks will drop that much”. REALLY???? Are you sure? None of them are profitable and trade and insane multiples. And higher rates = venom to high multiple / valuation stocks. Proof? Recent Proof? Just look at the relation of real rates and the collapse in price of all of these stocks. On average if rates go up 100bspany stock trading at 25X Price / Sales will suffer a 20-30% multiple contraction. </p> <p>Just look at the CAPM formula. </p> <p>ERi = Rf + B (ERm - Rf) </p> <p>-Rf = Risk Free (AKA RATES THE HIGHER THIS KEY # IS THE MORE YOUR MULTIPLE WILL CONTRACT) <br/> -ER= Expected Return </p> <p>-B = Beta of the investment / stock </p> <p>-ERm = Expected Return Market </p> <p>And for the ones who don’t know this is the standard formula which provides a simple and important metric “Capital Asset Pricing Model”. The higher rates go the more expensive it becomes to do business as the price of money rises cutting into all parts of your business resulting in less profits. For those who think these variations are normal you are in for a treat.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/pdieff"> /u/pdieff </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/puwt4o/if_it_trades_over_40x_sales_you_also_think_rate/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/puwt4o/if_it_trades_over_40x_sales_you_also_think_rate/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>If you agree Real Rates will continue to climb (say the 10 yr reaching 1.75% as it did in March). </p> <p>Then a simple cheap and amazing trade is to simply buy PUTS on any / all your favorite over valued, overhyped not profitable SaaS or other stock to Dec or Jan. </p> <p>Examples; DDOG currently $150 PS over 50X. March price mid $80’s. $110 Dec PUT 24% out of the money goes for $120 (in the money over $1.3K) Notice I didn’t even look for puts in the $80’s or $90’s. You can run this exercise over and over SNOW, DASH, SPT, ASNA, MNDY, S, NET, ZS the list is honestly endless. </p> <p>“Oh there is no way any of these stocks will drop that much”. REALLY???? Are you sure? None of them are profitable and trade and insane multiples. And higher rates = venom to high multiple / valuation stocks. Proof? Recent Proof? Just look at the relation of real rates and the collapse in price of all of these stocks. On average if rates go up 100bspany stock trading at 25X Price / Sales will suffer a 20-30% multiple contraction. </p> <p>Just look at the CAPM formula. </p> <p>ERi = Rf + B (ERm - Rf) </p> <p>-Rf = Risk Free (AKA RATES THE HIGHER THIS KEY # IS THE MORE YOUR MULTIPLE WILL CONTRACT) <br/> -ER= Expected Return </p> <p>-B = Beta of the investment / stock </p> <p>-ERm = Expected Return Market </p> <p>And for the ones who don’t know this is the standard formula which provides a simple and important metric “Capital Asset Pricing Model”. The higher rates go the more expensive it becomes to do business as the price of money rises cutting into all parts of your business resulting in less profits. For those who think these variations are normal you are in for a treat.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/pdieff"> /u/pdieff </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/puwt4o/if_it_trades_over_40x_sales_you_also_think_rate/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/puwt4o/if_it_trades_over_40x_sales_you_also_think_rate/">[comments]</a></span>Kind Regards R