The following article appeared on Livewire on December 13, 2019.
While growth investors are used to paying for stocks trading at premium valuations, there comes a point when even the most rapidly growing business may not be a sensible investment idea.
That’s a key concern for Joe Magyer, Chief Investment Officer at Lakehouse Capital, at this point of the cycle. And that’s why he’s happy to give companies like Zoom Inc (trading on an eye-popping 26 times forward revenue estimates) a miss. “Even though we’re very growth focussed, we don’t swing at every pitch,” he says.
Another trend he’s noticing is companies making poor capital allocation decisions and pursuing “low quality” growth.
“We get excited about businesses that are really analytical about how they reinvest into their business and have clearly defined hurdles.”
Here, Joe discusses the red flags he’s wary of during this point of the market cycle.
Disclosure: Joe Magyer owns shares of Facebook, which is also a holding of the Lakehouse Global Growth Fund.