Great work and love the latent factor analysis. The conclusion appears to say that sentiment plays a large role in valuation - Covid and GDP are as-good-a leading indicators for sentiment as any, especially over the last couple of years.
As in most assets you can split out systematic (market) and asset specific risk, the latter and the former both a mix of fundamental and sentiment.
You can then quantify the beta of a stock, often informed by leverage (on equity), thereby assuming different debt to equity ratios, or perhaps certain software companies exhibit their own form of leverage through alternate means to debt such as unique efficiency dynamics like network effects, recurring revenue or other dynamics that naturally (phenomenally) compound on return on equity $ for software co’s. It would be super interesting to cluster software companies by their growth / retention dynamics in a future analysis.
Very interesting! How are you measuring long-term growth?
Perceived sustainability and risk of growth/cash generation is a large variable but not sure if that shows up in any simple chart like GDP growth
Great work and love the latent factor analysis. The conclusion appears to say that sentiment plays a large role in valuation - Covid and GDP are as-good-a leading indicators for sentiment as any, especially over the last couple of years.
As in most assets you can split out systematic (market) and asset specific risk, the latter and the former both a mix of fundamental and sentiment.
You can then quantify the beta of a stock, often informed by leverage (on equity), thereby assuming different debt to equity ratios, or perhaps certain software companies exhibit their own form of leverage through alternate means to debt such as unique efficiency dynamics like network effects, recurring revenue or other dynamics that naturally (phenomenally) compound on return on equity $ for software co’s. It would be super interesting to cluster software companies by their growth / retention dynamics in a future analysis.