Why are so many unprofitable companies the best performing stocks this year? • Hacker News Board

Re: Why are so many unprofitable companies the best performing stocks this year?

#51

Post by bumby » Thu, Oct 15, 2020, 4:07 PM UTC

polote wrote: post #13

bumby wrote: post #7

Earlier quoted context omitted.

> companies reinvest profit There central company to the article’s point (Snowflake) has no profit to reinvest

it does actually, when you reinvest profit you don't make any profit. They reinvest the money before it could become profit, mostly by hiring more sales

Isn’t that exactly what the article is claiming they should do? Investing in sales and marketing now to drive future annuities isn’t the same strategy as reinvesting profits to dodge taxes as the OP claims

Re: Why are so many unprofitable companies the best performing stocks this year?

#52

Post by santa_boy » Thu, Oct 15, 2020, 4:07 PM UTC

mdorazio wrote: post #10

"Almost one in five of these money-losing companies is up 100% or more this year. There are some huge gainers on this list including companies like Overstock.com (+1055%), Tesla (+429%), Peloton (+348%) and Moderna (+285%). But there are also plenty of big losers of these money-losing firms. More than one-quarter of these stocks are down 10% or more this year while almost 50 names have fallen 30% or more in 2020." So…

> For a meaningful analysis, you would need to dig into the winning stocks specifically and ask why they're up so much.

IMHO rationalization of this is very random at best. Why is Zoom (up >600% YTD) really worth it?

Most of the big tech cos. can replace Zoom overnight. I use Google Meet daily without the trivial bells-n-whistles that Zoom offers. Absolutely no adjustments needed!

Jio in India (where I am from) would eat Zoom very quickly (https://bit.ly/3nSBuRy)

I don't mean to dampen the euphoria but seriously without $ backing, many of these companies are simply difficult to justify. (Valuations will revert to DCF over the long term. But then, in the long term there is no one really alive :-) ... dance along while the music is playing is the mantra ... )

I'd be happy to receive opposing views that are well explained.

Re: Why are so many unprofitable companies the best performing stocks this year?

#53

Post by Mamady » Thu, Oct 15, 2020, 4:07 PM UTC

"So the fear-mongering about companies with huge losses driving the stock market is misplaced"

Um... no. It would be great if you would come back to this article in 2 years time and run the same analysis on the same companies. I suspect the statement above will be rather invalid.

Re: Why are so many unprofitable companies the best performing stocks this year?

#54

Post by john_moscow » Thu, Oct 15, 2020, 4:07 PM UTC

sharkweek wrote: post #11

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…

>I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund.

You have just answered your own question. If enough people make financial decisions based on a specific metric, rather than their own understanding, of course they will be a whole industry of companies trying to game the KPI and make sure your uninformed dollar ends up in their coffers.

Re: Why are so many unprofitable companies the best performing stocks this year?

#55

Post by dustingetz » Thu, Oct 15, 2020, 4:07 PM UTC

ethbr0 wrote: post #12

I said this in another thread, and I think it's apt here. If you have high growth, you can lose a lot of money and still have a good story. If you make some money, but don't have high growth, then you can't tell nearly as compelling of a story. Effectively, investors are assuming eventual profitability is inevitable , and measuring growth. The 90s showed that's fair... sometimes. But definitely lets pathological corp…

Name a high growth company that grew to scale but didn't turn profitable? Uber? That still worked out

Re: Why are so many unprofitable companies the best performing stocks this year?

#56

Post by xoxoy » Thu, Oct 15, 2020, 4:08 PM UTC

nabla9 wrote: post #4

Small speculative unprofitable growth companies outside the major indexes are usually always the best performing stocks, because stocks in the same category are in the list of worst performing too. They have huge volatility.

lol at “small”

Tesla has 10x’d from a year and now at a $420B valuation. That makes it one of the largest companies in the world (I believe top 15)

All the companies that fit in this category like Carvana, Wayfair, Overstock etc are now at $10B-$30B valuations.

Point is these are not small by any means.

Re: Why are so many unprofitable companies the best performing stocks this year?

#57

Post by ComputerGuru » Thu, Oct 15, 2020, 4:08 PM UTC

dustingetz wrote: post #41

snarf21 wrote: post #29

It is very simple. There are two things happening here. One: the Fed has invested trillions buying everything under the sun (not just t-bills) to prop up the markets and make it look the economy is fine. Two: interest rates are being held artificially low by the Fed and have been for a while. So people are desperate for returns and the only place to get it is equities. It is a pyramid scheme and must pop someday. Rea…

USA is all in, expect military to prevent the pop

What will they do, put a gun to consumers’ heads to force them to buy exercise bikes and the latest iPhone models?

Re: Why are so many unprofitable companies the best performing stocks this year?

#58

Post by m1117 » Thu, Oct 15, 2020, 4:08 PM UTC

dlp211 wrote: post #47

m1117 wrote: post #17

Also I see the stock market as a train that will take me through the dark tunnel of the inflation caused by printing all the recent money.

The US does not print inflationary dollars. It prints borrowed dollars. This is a subtle but important distinction and is why we don't see substantial inflation now, and won't in the future.

I see, it makes sense. Never thought of that, thanks!

Re: Why are so many unprofitable companies the best performing stocks this year?

#59

Post by polote » Thu, Oct 15, 2020, 4:10 PM UTC

hitpointdrew wrote: post #46

The stock market price != value of the company. Stock market price == PERCEIVED value of a company. All the stock market does is try and find a equilibrium between parties that want to sell a stock and parties that want to buy a stock. That is it. It doesn't do anything more. You could have a company that is bleeding money month-after-month, is foretasted to never make a profit ever, but if there are more parties (fo…

> The stock market does price != value of the company. Stock market price == PERCEIVED value of a company.

No it is not, it is the price some investors are willing to buy at, which when the market is rational and there is no bubble is probably the perceived value

Re: Why are so many unprofitable companies the best performing stocks this year?

#60

Post by [deleted] » Thu, Oct 15, 2020, 4:11 PM UTC

KirinDave wrote: post #32

So if I'm reading this right, the author feels that the reason these companies are so valuable is because it destroys the free market one customer at a time, selling lock ins that would crush a normal business to escape, and that will deliver long term value as a result of said destruction. I guess that makes sense.

[deleted]