Update 12-27-22

This is the SP500 during the Dot Com Bubble. Notice how fast the market ran up compared to the bullish channel afterward. The Dot Com Bubble was a Parabolic Move Up. From what I've seen, major parabolic moves up tend to retrace.

This is a bird's-eye view of the SP500. Notice how fast the market moved up starting in 2020. Here is another parabolic move- up. Sure enough, we are seeing a retrace.

A parabolic move up can signify that the market is way too hyped. Many people and institutions are buying regardless of stock valuation and company quality. Hyper-growth stocks were providing the biggest returns, and so big money went into ARKK/ARKF-type stocks.

Many of the companies bought up were relatively high-quality. However, many of them were unprofitable and richly valued. Those are the companies that have sold off the hardest. But at a certain point, good growth stocks kept selling off regardless of valuation, profitability, and company quality. An extremely high-quality company that's experienced a major selloff (which, after being bought on the dip, is selling off again) is NOW.

NOW is a 12-bagger over the last ten years. They've grown their market share and built new products that their customers love. Even in a down year, their gross margin is about 78%. Their leveraged free cash flow and cash from operations are excellent. NOW's net margin is a little under the sector average, but the company is using the revenue to build and build-upon new products. This is an expense in the short term but, in theory, a revenue (and profitability) boon in the long term. 

NOW also boasts a projected 21.5% CAGR over the next 5 years.  

NOW was in the top 25 Best Places to Work by Glassdoor. Glassdoor awarded NOW #27 on the Top 50 best CEO's. NOW has a 92% Recommend to a Friend and a staggering 92% Approve of the CEO.

NOW is an exceedingly high-quality company. It's also being sold off as if it were trash. NOW went from $709 at the top to $337 at its YTD low -- this is what I mean when I say stocks are selling off regardless of quality.

Some will argue that at a 10.62 Price to Sales FWD, the company is still overvalued (if not substantially overvalued). My answer is that extremely high quality -- combined with high growth -- will never be valued like a value stock (except under very extreme circumstances like this correction, the Great Recession, and the Dot Com Bubble).

One can achieve a good ROI even when a stock is overvalued on a value/blue-chip basis. KO, for instance, has provided great returns (despite being richly valued). The same is true of LLY, WM, MA, and others.

There's been quite a bit of selling (for tax purposes, I imagine). We'll see what January brings.

This website is created and authored by Marlin Sandlin and is published and provided for informational and entertainment purposes only and merely cites my own personal opinions.  I am not a financial advisor, and this website is not intended to constitute investment advice or provide specific advice or recommendations for any individual or on any specific security or investment product.  Any action you take upon the information you find on this website is strictly at your own risk.  This website may share links to articles and information which is interesting to me, but it is in no way an endorsement by me or by anyone associated with me.  The views reflected in the commentary are subject to change at any time without notice.   I may or may not hold investments in the companies or securities discussed on this website.

Marlin Sandlin owns shares of ServiceNow (NOW), Waste Management (WM), and Mastercard (MA).