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Tech Stocks: Here Are Some Mistakes You'll Make

Kayode Omotosho profile picture
Kayode Omotosho


  • The SaaS space is filled with tons of investing mistakes that can trip investors.
  • While volatility is good, buying a stock with multiple valuation defects can trigger downside volatility.
  • This will make it tough for investors to calibrate their exit strategy/year.
  • This article highlights some of the ugliest investing pitfalls rife with SaaS stocks.

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Source: Syed Balkhi

The SaaS space is rife with valuation pitfalls. If investors are conversant with these pitfalls, they can improve the signal to noise ratio of the investing factors to be considered when creating a portfolio. This article highlights some of the common pitfalls in the tech space.

Timing TCO (total cost of ownership) pivot

Most enterprises buy the latest productivity tools and services to stay ahead of competitors. However, at some point, the C-level wants to understand the metrics justifying the superior ROI of these tools. While most SaaS companies grow off the huge sales and marketing success of selling the capabilities of their offerings, oftentimes, competitors come up with cheaper options, making the case to renew subs or extend service contracts tough to argue. When a company is growing off the premium pricing of its offerings, management needs to develop tools that will justify the deployment of more of its services; else, it risks facing a drawdown in product renewals when enterprise CFOs don't feel bullish about the market outlook during refresh cycles.

For all its dominance in cybersecurity, Norton-Lifelock (NLOK) didn’t escape this pitfall. It recently had to offload its enterprise security division while discounting its offerings in the consumer security space. TCO conversations happen when an industry is commoditized either by a growth in the adoption of open source technologies, low entry barriers, or encroachment on a competitive feature of a big tech company. A lot of SaaS companies like New Relic (NEWR), Atlassian (NASDAQ:TEAM), Slack (WORK), and Palo Alto Networks (PANW) are riding on the premium pricing of their offerings. Therefore, investors with huge exposure to these stocks need to recalibrate their risk appetite.

Studying early investment roadmaps

Until you dig up the pre IPO thesis of the tech stocks in your portfolio, you can

This article was written by

Kayode Omotosho profile picture
Kayode's strategy aligns only with businesses that have competitive moats, solid financials, good management, and minimal exposure to macro headwinds.-------------------------------------Coverage tilted towards tech stocks (IoT, Cybersecurity, Cloud, DevOps, Data management)

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (11)

I would rather buy shares of PanAm than risk any money on BB.
you are a mooorrrooonnn
SaaS Sniper profile picture
I used the dip last week to add new positions such as TTD, MSFT, ADBE, CRM, SHOP &. MTCH. I am a LONG investor with a 30+ year investment horizon... Thoughts on these? I plan to add more shares for any subsequent dips for a few of these.
Way to go @Riley! You’re the best!!! 🥴
Kayode Omotosho profile picture
I assume you're young. That's a good strategy. It means you don't need to worry about daily volatility. I assume the most important news will get its way to you either way.
J-L profile picture
04 Mar. 2020
All great picks. Wait a few weeks and buy more of it. The market is going down and we will have good opportunities to buy growth stocks cheaper.
EriCoin profile picture
I agree with you author but you know very well the whole Saas & tech sector is more volatile by nature when compared with other asset classes. The reward is generous but the risk is higher that's why, even though I'm a tech snob.. I always make sure Saas only has 20 percent of my whole portfolio. It's very testing but I usually try my best to stick to that.
Kayode Omotosho profile picture
Thank you Ericoin. I shared this to ensure investors don't make some mistakes I made.

Understanding the risks inherent in a stock doesn't mean it should be sold. It only gives you more confidence to hold during periods of extreme turbulence.
Software as a Service
Yes, the author should have defined it.
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