CLST Holdings Inc (CLHI)

[Renegades17]

Comps




Just to correct and actually further support the points you made, $NOW is trading at 180x trailing revenue, not earnings. That company won't generate earnings for a long time, but the market is obviously fine with that given the growth potential. Moreover, the market is looking at the company's assets, not just its ability to monetize (ie. generate revenue and potentially earnings). The asset value gets recognized before the monetization takes place. That is the norm in high-growth, technology sectors.

Just look at the venture capital markets where you hear of unicorns (ie. $1bn+ valuation companies) all the time. That has nothing to do with trailing revenue, which is constrained by the ability to hire and train salespeople to sell the product. In addition, potential strategic acquirers will be doing buy vs. build analyses on CLHI/TDS to assess whether it's better to just buy the company and use their internal teams to monetize. I am highly confident that the buy vs. build analysis (I did this type of work at a large Internet company during a non-bubble period) supports a much higher valuation for CLHI's stock. I remember an instance where we paid $20mm for a company that had a simple product built by 5 post-college kids with no prospect for revenue near term. This was simply because one of the product managers thought it had strategic value and we could monetize it. That $20mm valuation would probably translate to $100mm in today's market. TDS is way past that point, and that ignores the two acquisitions they've talked about (which could add tens of millions of revenue today).

Even Warren Buffett, probably the most famous "value" investor (I personally view him more as a GARP-type investor) took a position in $NOW at a valuation that proved to be ~77x trailing revenue. Even 77x earnings is not a value multiple let alone 77x revenue. The data-related sectors are simply ones that many investors (ie. the price setters) view as having sustainable growth and justify higher valuations based on asset value. The logic is that the revenues will either come as the company hires more people to sell the products or a larger company will acquire them (not possible in $NOW's case, but easily in CLHI/TDS' case) and monetize the assets with their larger salesforce and operating capabilities.