In this episode of Industry Focus: Tech, Dylan Lewis is joined by Motley Fool analyst Brian Feroldi to discuss different ways to value businesses and look at the valuation of a company. They also talk about investing with a margin of safety, where to get fresh stock ideas for your next investment, and much more.
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This video was recorded on August 21, 2020.
Dylan Lewis: It's Friday, August 21st, and we're talking about valuation techniques, total addressable market, where to get investing ideas and more. I'm your host Dylan Lewis, and I'm joined by Fool.com's frenzied founder of faulty frameworks, Brian Feroldi. I love the alliterative leading right into that last name, Brian; that really cues you up well. [laughs]
Brian Feroldi: I was thinking about doing a free firing founder, but you did a great job as always.
Lewis: I'm convinced at this point that you really just do this to trip me up, more than anything else.
Feroldi: That is 100% a funny logic. Dylan, you are such a good host that it hasn't tripped you up yet, so I need to try harder, apparently.
Lewis: Well, I love it, because I figure if I can get through the introduction that means I can't mess up anything worse than the introduction with anything else that I write in the show outline, nothing's going to be that complicated, right?
You are our framework person, our frenzied founder of framework person, but for this show I'm going to call you @BrianFeroldi, because we are getting questions from Twitter followers, and particularly, folks that follow you on Twitter. And for people who do not already, I would highly, highly recommend following Brian, is a wealth of really awesome investing, personal finance information on Twitter. But you put out there that we were looking for some topics for a show. We have some topics, thanks to some of our awesome listeners and your Twitter followers.
So, we're going to be running through some different ways that you can value business and look at the valuation of a company, we're going to be talking about margin of safety a little bit, and then we are also going to be talking about where to get stock ideas, but we're going to kick things off, Brian, with a question from Raul, I hope I'm saying that correctly, who asked us about some simple valuation techniques and risk management, creating a margin of safety with investments. Let's talk a little bit about the shorthand valuation techniques first.
Feroldi: Yeah. So, broadly speaking, valuation is incredibly important. It's definitely a huge part of investing, and there's a whole subset of investors that are called value investors. And they start first-and-foremost with what is the valuation of the business? That's their very first metric. And it's important to know.
When people hear valuation, the most common metric that they think of is the price-to-earnings ratio. And the price-to-earnings ratio is calculated, it's the price of one share of stock divided by the earnings per share of that same stock. And the ratio between those two numbers gives you a rough sense whether a company is expensive or if it's cheap or not. There are a lot of flaws with any valuation metric, including the price-to-earnings ratio, but that's as good as any to start with, Dylan.
Lewis: Yeah. And you can calculate that one of two ways. You can look at, basically, the overall market cap and the net income or you can do things on a per share basis and look at it that way. The earnings per share and the price of one share. Two different ways to the same place, because you're dividing by the same thing, kind of, either way.
I think that that is probably what people see the most often, but of course, you do need that E, for the P/E ratio [laughs] to really make any sense, otherwise you're going to wind up with an infinity sign; and that isn't particularly helpful if you're dividing by zero. So, we also have the price-to-sales ratio as a nice little shorthand. And you tend to see this with unprofitable companies, you also tend to see it a lot in our space, Brian, with Software-as-a-Service players.
Feroldi: Yeah. The companies that we talk about the most are, obviously, the ones that are high growth, they're disruptive, they're the most fun to follow, they're really shaking up the industry. And so many of them purposely choose to reinvest aggressively back into themselves in lieu of optimizing themselves for profits. So, that trips up a lot of people, because as you pointed out, if you're looking for a price-to-earnings ratio, a lot of times it doesn't exist on these businesses because there are no earnings yet, that doesn't mean that you can't value them, it just makes it a little bit harder and you have to be more willing to make some assumptions, which a lot of people aren't willing to do and that makes sense.
Lewis: I think one of the things that's important for folks that are just getting started and that are really starting to look at these types of numbers for the first time is, I remember being there as an early investor and saying, OK, well, the market P/E is, you know, we'll say somewhere in the mid-20s, because that's about where it's been over the last couple of years, this stock is trading at 45X earnings, it's so expensive. And you're like, well, why would I pay so much more than market premiums for these shares?
Often when you're looking at these alone, you also need to be factoring in the company growth and what that looks like. There's the PEG ratio [Price/Earnings to Growth Ratio] which helps you do that, but valuation is kind of an inexact science. I think if you are seeing businesses that have "high price-to-earnings ratios" relative to the market or maybe even relative to their peers, or if you're forced to use the price-to-sales, because there arent earnings it's very helpful to say, OK, well, they're not profitable, what are they doing on the topline to grow, does that make sense? Am I willing to pay 40X sales for a business that's growing 40% year-over-year? Probably. Am I willing to pay [laughs] 40X sales for a business that is growing 5% year-over-year? Probably not.
Feroldi: As you just pointed out, there are so many factors that you need to include in the discussion, when you're talking about the price-to-earnings ratio. One of the ones that I think gets overlooked by a lot of new investors is just asking, is this company optimized for profits? So many companies are not optimized for profit, so if they do have some, they are artificially being held low. Look at Amazon, over any time over the last 15 years, Jeff Bezos purposely reinvested every dollar that he could back into the business, more data centers, more warehouses, more sellers, more services. And if you looked at the company's price-to-earnings ratio at any point in basically the last 15 years, your takeaway would have been, ridiculous! this business is still overvalued, how could I possibly invest? And the answer there is, [laughs] you're looking at the wrong metric, you shouldn't judge a company like Amazon based on the price-to-earnings ratio until they're optimized for the P/E ratio.
Dylan, I'll give you another example right now. Autodesk, a company that I like very much, we've done a deep dive on them on the show before, when I look at Yahoo! Finance right now, I see that Autodesk has a trailing price-to-earnings ratio of 177. If that's all the information you had, your takeaway would be, ridiculous! like, this company is ridiculously expensive, how can I possibly buy this? It's important to know that when you look at most websites, such as Yahoo! Finance or even screeners, most price-to-earnings ratios that you see are backwards-looking, they're trailing price-to-earnings ratio. I also think that it's helpful to look at what's called the forward price-to-earnings ratio, which takes the price of the stock and it divides it by what the earnings are expected to be over the next 12 months or over the next year. If you do that with Autodesk, you see that Autodesk's trailing P/E ratio is 177, but its forward P/E ratio is 65. That is a much more palatable number.
The other thing that's important to keep in mind with P/E ratio is that, more often than not, it's using GAAP numbers. And, Dylan, we've seen all the time, when you're talking about tech stocks in particular, there can be huge differences between GAAP and non-GAAP. So, that's just another thing to keep in mind when you're relying solely on the P/E ratio for valuation.
Lewis: Yeah. And GAAP, non-GAAP is a can of worms, right? There are some people who really don't like the way that a lot of these non-profitable businesses wind up using non-GAAP numbers to highlight their business, and seemingly be much stronger than they are. The reality, and I think what we are coming back to time and time again, and we will as we continue to talk about valuation here is, it's important to understand the business and use somewhat tailored looks at that business to understand. And so, one example of this too, for valuation purposes, is price-to-book. This is something where it is so useful, if you are looking at banks, to use the price-to-book approach. As someone who doesn't spend a lot of time looking at banks, it's not really [laughs] something that I put in my toolbox all that often, and I'm way less familiar with it than a lot of the other core valuation techniques. But if I was evaluating a bank that would be one of the go to metrics I would look at, not so important for some of the other things that are more in our tech wheelhouse.
Feroldi: Absolutely correct, Dylan. Insurers are another industry where price-to-book is a good metric to use. And you can use price-to-book on companies like Berkshire Hathaway, JPMorgan, Citigroup, etc., those metrics are meaningful in those industries. If you try to use price-to-book on Shopify, it just does not work, you're going to get some ridiculous number and you would never invest. So, it's important – I think it's useful to have a range of valuation metrics at your disposal, understand them. And when you're trying to gauge the valuation of any given company, look at it and a bunch of different numbers.
Another one is the price-to-free cash flow ratio. So, free cash flow is cash flow from operations minus capital expenditures. Some businesses, such as, Software-as-a-Service businesses, actually are generating free cash flow well before they generate earnings. So, you can at least look at the price-to-free cash flow, that will show up before the price-to-earnings ratio shows up.
So, always, always try and use a range of metrics, just in case one is artificially inflated for some reason.
Lewis: I like what you're saying about using a couple of different tools and a couple of different metrics to triangulate something that makes sense. Because, I think, when people think about valuation, I can think back to my junior sophomore year in college, and taking some finance classes that did the DCF [Discounted Cash Flow] and had you modeling things out. And you have this idea that you're working to some exact number and you're providing all these inputs and at the end it kicks out what a company is truly worth, the intrinsic value based on what you are deciding is relevant as inputs. And unfortunately, that makes this whole topic really inaccessible. And I think it also has people, kind of, wrongly focusing on precision and focusing less on maybe the directional accuracy of what they're looking at.
Feroldi: Yeah. And for those that don't know DCF stands for Discounted Cash Flow calculators. The idea is that the value of a given business today is the sum of all the future cash flows discounted at some rate. For example, if you think that a company is going to earn $100/share next year and your discount rate is 10%, you would be only willing to pay $90 today for that $100 in expected cash flow. To your point, Dylan, I think that's exactly right. Discounted cash flow calculators are so precise that you can easily lull yourself into getting exactly the wrong answer. So, I personally don't use discounted cash flow metrics, but they can make sense in some cases for some businesses.
Lewis: I think that the exercise is almost more important than the output. I was listening to some of our analysts kick around the idea of DCFs there today. And I think it was Maria Gallagher said, you know, the process of going through and finding that number, you are going to start challenging a lot of the inputs and you're going to start thinking about what realistic growth looks like, what realistic element of their total addressable market are they able to see. And asking those questions is far more instructive than getting a two decimal share price number. [laughs] Because those things are much more important to the long-term success of the business and the individual price targets just really isn't all that helpful.
Feroldi: I think Maria is exactly right. I would say that going through the process and seeing what assumptions need to be made for that investment to "work out" on a DCF basis, is important. It's the same reason I use frameworks. I don't think that the exact number that my framework spits out is valuable, but I think going through the process and thinking through everything is valuable. One other thing I will throw out here, Dylan, some businesses are easier to value than others. And there are some subset of businesses that are just impossible to value, just flat out impossible. Tesla, impossible to value, in my opinion. Zoom Video, Mercado Libre, CrowdStrike, these companies are growing so quickly and are so dominant in their industries that it's nearly impossible to put a valuation metric on them today.
So, some companies, their growth potential is so huge and they have so much optionality in them, that you can't use valuation, you just have to buy [laughs] and take a leap of faith if you're interested in them.
Lewis: Yeah. I think the more optionality a business has, the harder it is going to be to value, because you can't necessarily see the range of outcomes in front of that business over the next five to 10 years, and chances are the market can't, either. And that's where you get into those situations where a "expensive stock" is actually cheap on a historical basis when you look, you know, five years in the future and that company has been able to double or triple, because they have all these markets that the broader stock market, Wall Street, didn't quite expect, didn't quite value in the way that they probably should've.
Feroldi: And think back to Amazon, Amazon of 2010, what was the discounted cash flow value of Amazon Web Services in 2010? You probably could not have come up with a number, it was infinitesimal, what's Amazon Web Services worth today, 10 years later? Hundreds of billions of dollars. So, that's in a big way, we look for companies that have optionality, have the ability to launch new products and new services, because if a company can do that successfully, it can create multitudes of value that you can't see when you first make your purchase.
Lewis: One other thing that I think you can do as, kind of, a fun little valuation exercise, and this ties a little bit more into what we're talking about with DCFs, with the idea of the inputs being more important and just understanding the core things that drive a business forward. Looking at the core elements of what drives value for that business, and then using it as a way to put the market cap in context. An easy example of this would be the social media companies. So, for them, the users are the most important thing, because ultimately the users are the product, they are selling access to those users, to advertisers, who want to be able to promote their products.
And to, kind of, walk through this quickly with a company. So, Pinterest has a market cap of $20 billion, over 400 million monthly active users, you could say they are being valued at about $50/user, and that would be one way to look at their business. You could stack that against what they are able to generate in value and revenue for each user and start to see whether that valuation makes sense, or put into the context of a company like Twitter, one of their peers, with a market cap of around $31 billion and somewhere in the neighborhood of 350 million users. They've changed their reporting requirements and don't give us monthly actives as often. So, we'll say that's $90/user roughly. Pinterest users aren't being valued the same way that Twitter users are, possibly another bull case for [laughs] Brian Feroldi and Pinterest, but an important way to look at this company, understand what drives value and start to make sense of it.
Feroldi: I think that's a great metric that you just laid out there, and the point is that valuation is very much an art, it's far more art than it was science. And when I first started investing and really came to The Fool, valuation was one of the primary things that I looked at, that was one of the primary lenses that I looked through things. The longer I've invested and the more I've studied David Gardner's winners keep on winning style, the less value I personally place on valuation.
One of my favorite investors at The Fool, Brian Stoffel, doesn't even look at it at all. He just says, if this business checks all my boxes, I'm buying; if it doesn't, I'm not. And that's a framework that works.
Lewis: Yeah. And I think, it probably has shifted for me, where it was one of the first things I looked at, to now, it is probably one of the last things I look at. And it very rarely will keep me out of something entirely, but what it might do is inform the position that I start with. So, a very richly valued business might be something where I'm like, you know, I can probably start a little bit smaller [laughs] than some of my other positions for more established companies.
Feroldi: Yeah, I think that's exactly how you should look at it. If you like everything about a business, except the valuation, there's no harm in taking a tiny bite of it.
Lewis: I guess related to that, we can, kind of, touch on the second part of Raul's question. And that's creating a margin of safety with investments. And this, kind of, gets into that same idea of, you know, valuation having what you think a business is truly worth, and what the market is willing to pay for shares of it at the moment, giving yourself some comfort. And it's a little bit of a wonky topic, but I think we can do it justice, Brian.
Feroldi: Yeah. This is a concept that was popularized by Warren Buffett and is, like, the mantra of value investors everywhere. The idea is you come up with your own independent valuation of what any given company is worth and then you only buy that company when it trades at a substantial discount to what you think the fair value is. The number that I've always heard thrown around is, you know, if you think something is worth $1 today, you don't want to pay more than $0.80 for that $1, and that $0.20 of gap between what it's worth and what you're paying, that's your margin of safety. That renders the needs for things to go right or that makes it so, if something goes wrong, you don't get hurt that much. And it's a concept that just makes a lot of sense on the surface.
And Buffett has deployed that strategy with great success throughout his career, buying companies like Coca-Cola and American Express when they traded at huge discounts to what he thought was fair value.
Lewis: I think the problem is that you need to be able to come up with a number for that intrinsic value that makes sense. And that's beyond the scope of a lot of newer investors for sure, but we were just talking about before, I mean, those DCFs are only as good as what you put into them. And you know, it kind of gives you more the illusion of precision than maybe the most accurate picture of what a business really looks like.
Feroldi: Yeah. And I think that you can do it on some companies. Like, the bigger, the more mature, the more predictable, the higher the likelihood that you can value a company successfully and then buy at a discount to that. So, a company like, say, a utility or a trash hauler or a beverage maker like Coke or [PepsiCo], those companies have far more predictable revenue streams and profits and businesses, in general, than do a lot of the tech stocks that we talk about.
So, I think that you can still apply that framework to those kinds of businesses, but when stocks are at all-time high, boy! is it hard to find ideas. [laughs]
Lewis: I do think that there are elements of margin of safety, that way of thinking, that are probably applicable to other investing ideas, and they don't need to be nearly as hard core as, you know, the longtime investor with a spreadsheet, getting down to that price target that we were talking about. I think the concept of having a cushion and having some sense of security with what you're buying, and that you're not putting everything on red, so to speak, is something that's applicable and transferable in a more simple way for a lot of investors, Brian.
Feroldi: Yeah. And, Dylan, you talked about this before too in that same vein. One of the ways that investors can create a margin for safety for themselves, is by positioning the allocating position size in their portfolio appropriately. If you find a very fast-growing company that really interests you, don't put 20% of your portfolio into it. I mean, yes, sure, you could make a ton of money if that works out, but the risks for those kinds of businesses are incredibly high. There's nothing wrong with putting small bits of your portfolio into a company and then following its progress over time. That's exactly the strategy that I use when I find a company that just checks every box for me, I'm very willing to put 0.5% of my portfolio into a given company, even if it trades at some obscene valuation, as long as I like everything else about the business. And doing that insulates my portfolio from me paying some ridiculous price and being wrong.
Lewis: Similarly, I think the ultimate margin of safety is having your financial house in order before you start buying stocks. You know, being able to go in and say, the money that I'm putting into this investment is money that I don't need for the next three to five years. We harp on it so much, but it's so important, Brian. That puts you in a position where, especially if you're buying high-growth stocks, you can weather the storms and you can not get too spooked when one quarter's results wind up sending shares down. So, if you're working with money that you don't immediately need, and you have some cash on the side, I think that that's a margin of safety in its own way.
Feroldi: I think that's exactly right, Dylan, I like what you're saying there and I wholeheartedly agree with that. Another thing I will throw out there is, if you find a company that you believe is almost guaranteed to grow within the next five or 10 years, that in a way creates its own margin of safety. Yes, you could be overpaying in the short-term, but if the company consistently grows, it can eventually grow into its valuation.
Another way that I think about margin of safety, is just the business itself doesn't have customer concentration, that's risky, right? Does it have a balance sheet that has tons of cash or is it debt heavy. The debt heavy ones, that's risky. Is demand for the company's products cyclical or is it recession-proof, is revenue recurring, Dylan, you know we were going to say that. [laughs]
Lewis: [laughs] All right, listeners, take a shot, Brian said it. [laughs]
Feroldi: [laughs] Does the company have the ability to raise prices, all of those factors work together to make the business itself more resilient and make it more likely that the company can continue to grow over time. I think that buying companies that exhibit those traits, do build in a margin of safety.
Lewis: Yeah, I 100% agree. And that gets a little bit more to the accounting type definition that you would use for margin of safety. We were talking about it in the investing sense, where you have a price target and what it is currently worth and that cushion that that might afford you. An accountant would think of the concept of margin of safety and basically say, what's the gap between current sales and breakeven? What kind of reduction can we weather and still be a surviving business? And all of those elements that you just talked about, Brian, get at that. Can we continue to service our debt if sales slump pretty quickly? You know, that cash position is going to be huge. [laughs] And you know what's funny, Brian? These are all things on your checklist, these are all things that are part of your framework for how you evaluate businesses. So, baking these types of things into how you look at companies and just making it a part of the process, can immediately give you that sense of margin of safety. And then you don't even have to think about it as a carveout, it's already baked into the process.
Feroldi: Exactly. And it's almost like I was looking at my checklist when we were making the script for the show, Dylan. [laughs]
Lewis: [laughs] The margin of safety was with you the whole time, Brian. [laughs] We also have a question from Matthew asking, "How can you avoid getting fooled by TAM [total addressable market]?"
And this might be the question of the last 5 years in tech, Brian. [laughs] I think for every S-1 show, every prospectus show, we've looked at a company that is recently going public, there's been some line in there saying, we believe our total addressable market to be -- insert a huge number. And it's kind of hard to gut-check that.
Feroldi: It is. And some investors at The Fool don't look at the TAM at all, they think it's a completely irrelevant metric. Other people, and I include myself in this group, I love to see the TAM and I want to know how realistic it is and who came up with it. If the management team is the one that says, here's our TAM, discount accordingly. If Gartner or some other third-party, reputable third-party comes up with it, maybe you can put more stock into it. But I always think it's useful because I want to understand -- before I make an investment, I need to believe that a company can grow at a double-digit rate for a decade plus; that's where the big returns come in the market. And you can only do that if you have a huge growth runway ahead of you.
So, I do find it's helpful when I look at a company's TAM. If I see that a company has a TAM of $50 billion and their current sales are $500 million, that means that they've captured 1% of their TAM. Even if they're off by a factor of five on their TAM, there's still a tremendous runway for them to grow. So, I personally always look at it. Do you, Dylan, what camp are you in?
Lewis: I do. I think it's useful, but I wouldn't over-anchor to it; kind of, similar to you. I think that penetration is huge, but I really like gut-checking that number. And I've seen a lot of crazy numbers thrown out there. One of the one that sticks out to me, and why I think it's important to understand what goes into those figures is, I'm pretty sure it was Uber's prospectus. They were comparing their penetration in overall transportation miles. Like, [laughs] they were addressing their total addressable market. And if you believe that ride-hailing is going to take over and supplant every single mode of transportation, than I think that that could be a reasonable total addressable market, but if you think people are going to continue to use public transportation and things like metros, things like buses, then I think you probably need to discount the total [laughs] addressable market that they're throwing out there. And so, looking at the figure, and then understanding what inputs are going into it, super-helpful.
Maybe, if you can, gut-checking it against other third-party research. You mentioned some of the big names. Gartner is great for this kind of stuff. But there are so many other folks out there, especially in the digital marketing space and the ad spend space, there's a lot of data about this stuff. And putting together your own total addressable market can be really helpful, comparing it against what the company throws out there and just seeing how realistic that is.
Feroldi: Yeah, in that same vein, I remember – maybe it was like 20 years ago, Coca-Cola got a new CEO, and he came and he said, well, we only have 1% of the liquid of the beverage market. It was like that included, like, tap water and all that kind of stuff, and it was like, you might be overestimating your TAM there a little bit. But yeah, discount accordingly. And it's also important to know that TAM, the Total Addressable Market, that's not a static number, it is a number that is constantly changing. For example, what was Amazon's TAM in 1995? Books. What's Amazon's TAM today? More than books. [laughs]
Lewis: [laughs] Anybody that has a margin is basically their TAM.
Feroldi: [laughs] Yeah, exactly. And that just shows how optionality can render TAM obsolete. If a company has embedded optionality and the ability to launch new products and new services in adjacent markets, that can dramatically make a company's total addressable market opportunity far bigger than it is. So, again, some investors that do not look at TAM, what they want to know is, is this a business that has optionality? If they do, they can grow their TAM, therefore whatever TAM I see today isn't the actual number. That kind of thinking also makes sense to me.
Lewis: [laughs] To apply that same type of thinking, Brian, to a company that doesn't have all of the resources in the world, like Amazon, and thinking about it maybe in a way that's more repeatable across a lot of stocks that you'd look at. We talk about the Software-as-a-Service space all the time, and one of the reasons we like that space so much is once customers are in there and they see the value of what these companies provide, those companies continue to roll out new services and see what's useful to their core clients. They can expand their user base by getting into new verticals.
And, you know, say you're in accounting software and you also want to be able to provide people with payroll, you also want to start rolling out HR solutions. It's pretty easy to do that, that probably wouldn't appear in your prospectus if you were only going to start thinking that way three, five, 10 years down the road.
Feroldi: Yeah, that's exactly correct, and that's another reason why we always talk about Software-as-a-Service companies, because we've seen that time and time again where the best ones land the customer and then expand, expand, expand with new products, new services. Each time they do so, they're increasing their TAM. But overall, it's a useful metric to look at, but like everything else, context is key.
Lewis: And that's really the theme of today's show, [laughs] I think, is with all the numbers that we're throwing out there, you can't over-anchor to any single one, but what we're trying to do is get a more complete picture of the business with each one and work to better understand it as we learn more and more.
Brian, we're running a little long, but I want to wrap with one more question. And this is, favorite free investing tools. Love this one, we get access to some cool stuff, being Motley Fool employees, and we make heavy use of YCharts and things like CapIQ, however, not everyone is able to [laughs] afford those types of tools. And so we want to talk about some things that are a little bit more budget-oriented, but I think the coolest thing for me, kind of cutting my teeth as an investor was, all the stuff that Wall Street has access to, we have access to, in terms of the core information. What a lot of these software providers do is make it easier to find that information, but the regulatory filings the investor relations website stuff, all that's there for the public.
Feroldi: Exactly. So, whenever I'm interested in any company, the very first thing I do is the company's website, because every single company out there has an investor relations section. And you can find, in some cases, transcripts of previous calls, you can find earnings presentations, you can find company overview presentations, you can find links to the SEC filings, the analyst reports, etc. Not all investor relations websites are created equally, but wow, can they be full of all the information that you need to make an investment decision.
Lewis: And if the company makes it hard. You know what, that's what SEC EDGAR is for, right? [laughs] You know, the regulators are there for a reason, and they make that information available to the public in an easy and relatively systematized way. And I love that we have that resource. You go straight to the source, get the primary information, you don't even need to necessarily read the earnings reports that come out from us or from so many other members of the financial media, I think it's almost better to get the numbers unfiltered and see what you think is important. And you can do that from those resources.
Feroldi: Yeah. I think that that's exactly right. Always going to the source themselves, and you actually get the real information, because some of the other sites that we're going to recommend, sometimes their numbers aren't always exactly 100% accurate, so you have to keep that in mind. But another one that I use all the time is FINVIZ.com, that is a free stock screening tool. If you want to come up with ideas for sectors or themes or you want to screen by almost any metric that you can think of, that's a wonderful tool that's completely free to use. So, that's one that I use regularly.
Lewis: Yeah, I think that's probably one of the better free screeners out there. I use it for a lot of show ideas. Like we did a show recently, checking in on some of the best performers year-to-date, and I got that information [laughs] right from FINVIZ. That was the screener that I put in, just looked at year-to-date returns, filtered down to stuff in the tech space, and then looked at the companies that we want to talk about. And it's nice and simple, relatively straightforward.
Yahoo! Finance is also a pretty good resource. I know they were at one point, kind of, the go to for all things financial media. And I think as aggregators like, Google News and Twitter and all these other places have kind of come more into vogue, they've been displaced a little bit. They have a lot of great information there. They actually have pretty good sources for analysts' estimates. They usually wind up being able to aggregate that pretty well, which can help you with those forward earnings things that you were talking about before, Brian. You do need to be careful and make sure that you're looking at the right numbers, though; occasionally I do see some wrong numbers on there.
Feroldi: Yeah, for example, I was just looking at Autodesk, and Autodesk's numbers were wrong. They had the price-to-earnings ratio and the forward P/E ratio, were slightly off. Again, I think that is mostly the GAAP versus non-GAAP thing. But, yeah, keep that in mind. Another one I will throw out there, that I recently discovered and I like a lot is StockRow.com. That has a nice 10-year view of the company's financial information right there for you and all kinds of free charts and stuff that you can use. So, a really handy one. And it actually shows analyst estimates one, two and three years out, whereas Yahoo! Finance is just one year out. Obviously, keeping in mind they are estimates, but, hey, it's still good to know what the street is expecting.
Lewis: Yeah, 100%. And I know you have a couple more tools here, Brian. One thing I will throw out there, we've been talking a lot about publicly traded companies. If you're at all interested in the private space, Crunchbase is really great for that. You get some early profile information on some private companies, very often you can see what some of their funding rounds look like. Obviously, not investable ideas for most people at that point; we have to wait until they hit the public markets. But if you're interested in some businesses that may come public soon, that's a great place to go for information.
Feroldi: Great. And [...] but hey, three more from our Whale Wisdom. That's a great site for aggregating what hedge funds, mutual funds are buying and selling, so that makes it easy to track Warren Buffett's portfolio, for example. Another is IPO Scoop. That is one that just shows you a lot of information about new IPOs, how they're priced, how they've done. That can be a great place to go to find information. And we would be remiss, Dylan, if we did not give a plug to Fool.com, [laughs] which has been one of my go to resources for decades now. Tons of great information, tons of great content. And just within the last year or so, Fool.com started offering free transcripts on conference calls, they are excellent. So, definitely check that out if you've never used that before.
Lewis: Yeah, we have some really cool site features that I make use of pretty regularly. The management conference calls are one of them. I love our earnings calls. And the updates that we do around earnings, they're really good quick snapshots and often, you know, you can't read every single earnings report, so it's a great way to get a quick primer on something that, you know, in the case of, like, Apple, it's like, all right, I can read what Evan Niu has to say about the Apple earnings report and then focus on some of the other things in my portfolio. And I'll throw those 10%-ers that we view out there, too. You know, we see some pretty big swing sometimes in the market, and sometimes you just need to know quickly what's going on and we have a whole series, 10% Promise, that's related to covering big moves with short, kind of, quick summaries that give you a sense of what's going on.
So, yeah, we got to mention Fool.com to keep the bosses happy, Brian. [laughs]
Feroldi: Exactly. I mean, I would be saying that anyway, because I legitimately use Fool.com all the time.
Lewis: Me too. Well, Brian, like I said, I urge people to follow you on Twitter @BrianFeroldi. We wind up doing a lot of our calls to, hey, we want show ideas via Twitter. And so, you're @BrianFeroldi. I'm @WilyLewis, and you can catch the show @MFIndustryFocus. We love getting show ideas there. You can also reach out to us via email IndustryFocus@Fool.com. I think that's going to do it for this show, Brian. We're pretty long at this point. [laughs] But it was a fun one.
Feroldi: Always great talking to you, Dylan, have a great weekend.
Lewis: Yeah, you too. And, folks, if you are looking for more of our stuff, you can subscribe on iTunes or wherever you get your podcasts.
As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear.
Thanks to Tim Sparks for all his work behind the glass and thanks for listening and Fool on!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of Amazon, Autodesk, MercadoLibre, Pinterest, Shopify, and Tesla. Dylan Lewis owns shares of Amazon, Apple, MercadoLibre, and Shopify. The Motley Fool owns shares of and recommends Amazon, Apple, Autodesk, Berkshire Hathaway (B shares), CrowdStrike Holdings, Inc., MercadoLibre, Pinterest, Shopify, Tesla, Twitter, and Zoom Video Communications. The Motley Fool recommends Gartner and Uber Technologies and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
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