Empfohlener Beitrag

TSLA a Value Buy? 2019 P/S below 1.5

Mittwoch, 26. Dezember 2018

After Precigen CC: Still Bullish on Intrexon

Today I listened to the webcast of the "Precigen Business Update Conference Call" - and you should too, as long as it's still available on Intrexon's website.

They did not exactly provide news about Precigen (basically Intrexon's pharma division), but some very useful clarification about the previously announced deal with Ziopharm (slide 5 in the presentation): It basically says Precigen has exclusive rights regarding CAR-T and "Sleeping Beauty" to develop therapies for all tumor types (including solid tumors) while Ziopharm's exclusive CAR-T rights are limited to CD19 (which is promising, too. Precigen will receive royalties, in case) and it also has licensed Sleeping Beauty use only for this CAR-T target.

[UPDATE: after discussing with other investors about the presentation, for me it became clear that the picture they gave about the deal is clearly understating the rights Ziopharm received. By the way, I own some ZIOP stock, too, since my view of the "Sleeping Beauty Story" changed a bit in favor of Ziopharm. To read the other side, outspoken investors at Twitter are a good start]

The second very encouraging slide of the presentation contained some details about PRGN3006, which was recently FDA approved to start a Phase 1 study. They could essentially heal AML (Acute Myeloid Leukemia, for which no effective treatment has been found yet) in mice.

To make it short: I am more than ever convinced that Precigen is another undervalued asset in Intrexon's portfolio. (To be clear: I do not consider all their assets as undervalued. I perceive some investors as having extremely high expectations in an "energy deal", which I doubt will happen as oil is significantly down from highs. I also do not think they will make billions on their salmons and non browning fruits - I like the tech, but I think too many "GMO fear people" hate it - and I also think their mosquitoes have similar popularity issues.)

I'm holding Intrexon because I think either any Precigen product or "ICP" (or another agriculture related technology like "Florian") or maybe chemicals (2,3 BDO), or some or all of them will be a bigger commercial success than their current $1b market cap suggests.

And I added to my XON position today at 7.15 (near all time lows - which statistically does not suggest a good chance a stock will rise soon, to add another warning here). I think short term there will remain pressure, in part because of their deal with Merck (Merck gets $150m in common shares, amount of shares to be determined based on the last ten days until December 28. The deal is also about CAR-T rights). But long term this company should be worth significantly more than 1 billion.

I am long XON common shares.

Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Montag, 3. Dezember 2018

Shorting Euro Bund Futures on Recovering Oil Prices

I decided to go short on the Euro Bund Future. In my opinion this has basically been overvalued for years (imo mainly because of ECB buying government bonds, which will probably stop 2019; I might write more about my take on Bund Futures valuation when I have more time), I do not see much room to the upside; recently spiked up because of trade tensions and high volatility in stocks. Might go down a few points on China trade deal.

But the main idea why I think it should go down is oil price rising on calming trade tensions: I think a falling oil price is the biggest risk here, because it will make inflation go down and might cause ECB to extend bond purchase programs.

The Bund Future does not move a lot, so I decided to go for a leveraged ETF. I chose this as trading vehicle (I also thought about shorting the 15x long equivalent, but my broker could not find those to borrow anyway, so I bought the 15x short ETN; also has the advantage that total loss is limited to 100%) ISIN: DE000ETN0AF5. It trades at German exchanges.

I am long ISIN: DE000ETN0AF5. Bought at 0.083.

Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Mittwoch, 21. November 2018

Shorting Wayfair on Uptick, Overly Positive Articles

I have been waiting for some days to get what I regard as an attractive opportunity to make a few $ on one of the more obvious shorts in this market.

Last night i read this article on Seeking Alpha about an "Enormous Opportunity" the author sees in Wayfair (he means when buying the stock!), which showed me that it's still not too obvious to short it. Especially after it has rallied nearly 10% now in 2 days.

I just pick one sentence from the article here: "Companies like Wayfair are difficult to value without any realistic path to profits." - and while the author goes on to compare its P/S to Amazon's I firmly disagree with the sentence above: It is pretty easy to value a company with no realistic path to profits, with a negative book value and rising debt levels in a market that has stopped to be extremely bullish on anything that at least slightly reminds people on Amazon (or another "FANG" company). Obviously, a company without a viable business plan or meaningful assets will not survive a recession combined with a bear market. I'm not saying they can't be profitable at some point in the future - but, as Amazon is also increasingly selling furniture, the probability is low enough in my opinion to justify a bet that this stock will rather drop further than go up (except market or, more precisely, the group of FANG-related stocks as a whole "recovers" back to bubbly levels faster than I anticipate).

So I shorted some at $89.

I am short W stock.

Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Donnerstag, 8. November 2018

NFLX 2019: More Competition, Still Negative Cash Flow

Netflix is a great company, no question about that. But it is still spending much more than it earns (talking about cash flow) and I think it is not given that there will be any point in the future where they can significantly reduce spending on new content without losing a significant amount of subscribers. Sure, it's by far the number 1 brand in streaming series and movies at the moment, but what they are doing is not that unique and, more importantly, they do not own any significant technology that others could not use, too. They are simply spending massive amounts of money to create great content that is immediately available on their platform (and, in most cases, nowhere else).

What is underappreciated by most investors at the moment is, in my view, that the big media companies like Disney, Sony, TimeWarner have also been producing great content - and they have been doing that for decades, so their libraries are vastly bigger than what Netflix has (if you substract the content they licensed from Disney and the likes). Netflix' advantage at the moment is that they have the really fresh stuff. But, again, they can't have that without significant cash burn: at their latest quarterly conference call they said that in 2019 they will again have billions of negative free cash flow (but they expect "material improvement in 2020".

This is what made me raise an eyebrow, because I think 2019 will be far easier for Netflix than 2020 and beyond, because Disney will take (all their?) content from Netflix and start it's own streaming service, expected to launch in 2019 already and to contain everything from Mickey Mouse to Star Wars and Marvel. And you should not forget they are acquiring Fox, which has a huge library, too. I think Netflix management overestimates the growth potential beyond 2019, I'm not sure they will see any subscriber growth at all in 2020. Apart from Disney, Youtube, Amazon and HBO (which they also mentioned in their call) it's generally hard to estimate trends in media consumption 2 years ahead. I remember only a few years ago, hardly anybody was willing anything for streaming content: before Neflix and Spotify arised, illegal downloads and streams of music and movies were dominating the scene. This market is changing rapidly.

I have been thinking of buying DIS shares, because I think their streaming project is likely to become a big success - at least if they really put everything they own into it. But I am hesitating, because competition from the likes of Amazon and Alphabet (Youtube) - who can easily spend vastly more money on new content than even Netflix if they decide to go all in - seems to be heating up. At the moment I think it's harder to predict a winner than to predict that Netflix' lead will be far less unchallenged than its current valuation (even after a drop from all time highs earlier this year) of about 10x yearly revenue and 100x "profit" (quotation marks because cash flow is still negative: only the value of their library is growing, but I think we have to expect an inflation of new content, so I'm not really sure how to value all that), enterprise value (= market cap + debt - cash) near $150b suggests.

I shorted some NFLX shares when Nasdaq and especially "FANG" rallied on November 7, after midterm elections.


I am short NFLX common shares.

(Update: I had a tight stop - as I usually have with Short positions - and was stopped out already on November 8. I still would not buy the stock anywhere near these levels but it might have another run, if "FANG" bounces back further. I would consider shorting NFLX again and also shorting AMZN in that case.)


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Mittwoch, 7. November 2018

Strategy: My Conditions for Short Selling

You always have to be very careful before selling a stock short. Remember: The amount you might lose is theoretically unlimited (to actually limit losses, first rule is to always have a stop order as an insurance!). Still, especially in a market environment where all stocks trade at high valuations, obviously it often makes sense to sell some stocks short.

For me, after having been burnt more than once, a candidate stock to sell short has to meet the following criteria:

1. Large caps

Even if you are totally right and the stock eventually goes to zero, you can lose a lot if you are trading small cap stocks that potentially gap up 50% or more one a day and you are stopped out (worst case: by a margin call) at a far higher price than you imagined. I do not short companies with market caps of at least a few billion dollars and I would prefer at least $50b.

2. High debt (or fast cash burning)

Companies without significant debt often remain overvalued for a long period of time, because (even though that is not true, of course) people tend to think if there is no debt, the company can impossibly go bankrupt and so it will "grow into it's valuation" at some point in the future.

3. Low growth

I don't short companies with high growth (expected). Those can, like small caps, go up very fast and make you lose your bet even if your correct in the long run.
I'm looking for companies that used to grow fast but have stopped to (and the company or environment have changed in a way that made me assume there is no way back to fast growth).

4. No extremely low multiples

I look at P/S and EV/Sales, P/E, P/B and compare them to the stock's history and competitors' valuations. For the same reasons as 1. and 3., I avoid stock with extreme valuations (like P/S or P/B below 0.5, P/E far below 10): Even if they are wrong, "bottom fishers" may come in and push the stock significantly higher for a period that is longer than you can afford.

Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Mittwoch, 31. Oktober 2018

Selling out of BYD (to buy more XON)

BYD announced q3 results a few days ago. They were roughly in line with what I expected, as was the optimistic q4 outlook. So, I am not selling BYD because profit is down, I think this is temporary, based on new models, new battery technology and new government incentives policy.
I would not buy large amounts of BYD at this point because of the long term outlook. It might be a few quarters too early to sell, because I think 2019 will be a fantastic year for their EVs business. But I expect that will be the peak: starting 2020, Tesla is going to produce in significant volumes in China (they recently announced they are going to speed up factory building there); other large auto companies from the USA and Europe are going to get out their electric vehicles as well, some particularly designed for the Chinese market.

Swapping BYD for more XON

I basically think BYD is a hold, but I am selling today, because I need more money to invest in what I think is the best opportunity at the moment (Intrexon: it's not a short term story and it did not change at all - share price still down with the market, 25% from where it was a few weeks ago; any news might move it 25% in an instant, like the - IMO totally insignificant - cannabis news did in september) - and I still think it would not be wise to buy anything on margin, as markets are only a few percentage points below their all time highs yet.

By the way, I also sold JD and bought more China agri-industries (which was a minor move, as I only had a small position and sold it for essentially no other reason but to concentrate my "China bet"-money at what I came to think is the best bet in Chinese stocks), and for similar reasons I also sold Red Hat although I don't have much doubt about IBM deal and so I think it is going to 190 within a year.


So my current portfolio is dominated by XON, TSLA and China agri-industries (live quotes for HK Stock exchange can be found here).


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Montag, 29. Oktober 2018

Buying Red Hat below 180: IBM to pay 190 per share

IBM announced to buy all outstanding shares of RHT at $190 per share. So stock price will go to very near 190 (unless something unexpected happens that would stop the deal - unlikely IMO).

I bought RHT at 176 in premarket trading.

(Update: I closed this position with a small loss, shifted the money into XON; I have very little doubt the deal is going to happen but it takes a while until RHT shareholders and regulalators approve; I hope XON will move up faster but I would definitely not short RHT at this point.)


I am long RHT.


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Donnerstag, 25. Oktober 2018

Great Earnings, Great Outlook - Adding to TSLA position

Today's premarket reflects what happened to other stocks reporting great earnings recently (like NFLX): after an initial large pop, the stock gives back some of the gains and trades only slightly above yesterday's highs (BEFORE numbers were out). But this is a very different situation.

Pre market traders probably do not see the game changing quality of this earnings announcement. The short thesis for TSLA stock is basically "the company is structurally bankrupt, because it is losing money on every car they sell". Last quarter, Tesla proved the opposite: they made money on every model they sell. And, above that, they predicted they will do so in every future quarter.

Basically, I still believe everything I wrote here about why market fails to value TSLA correctly. But, after q3 revenue came in 10% higher than I expected, I think all my estimates for 2018 and 2019 were too conservative - so I conclude TSLA at 315 is as cheap as TSLA was at 280 some weeks ago.

I doubled my TSLA position on pre market weakness (vs. yesterday's after hours) at 315. (Strategy: keeping core position long term, trading the other half on short term mispricing like this.)

I am long TSLA.
Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Update: Selling order was filled for a 2% intraday gain, still holding core position

Dienstag, 23. Oktober 2018

Adding China, selling Wilmar, FDP

I am adding to my Chinese Bets.

As I do not want to increase overall portfolio value and I think stock prices - except China - are still a bit too high, I am selling out of other positions.

I am still holding long term bets XON, TSLA and GOOGL; selling out of other posistions, which is Wilmar and Fresh Del Monte (although I still like those stocks and will add again if China bounces back or those stocks go down further).

I added JD (JD.com) and increased China Agri-Industries, Xiaomi and BYD positions.

I have been thinking about taking stakes in other popular Chinese companies like Alibaba, Baidu and Tencent, too, but (in contrast to JD) those are still trading at very high valuations, markets are hardly pricing in significant impacts from an ongoing "trade war" and (in my opinion more important) also not pricing in that at some point the likes of Google, Facebook and Amazon might finally gain some ground in China. I might buy those highflyers if they show significant signs they can compete with world leaders in an unprotected market - i.e. out of China.

Freitag, 12. Oktober 2018

Stopped out of FB and FCAU positions

Down against a recovering broader market; had tight stops.

No longer holding FB and FCAU.

Buying FB on downgrade, pullback

I also added some FB today.

Morgan Stanley cut estimates and price target. Might be near a bottom after the disastrous q2 cc in July, privacy fears and recent market pullback on China "trade war" (which by the way does not actually hurt Facebook, because they don't have a lot of China related business).

Business is still solid, PE 20 does not need future growth to match past growth; debt near zero.

Bought some at 155.31, will sell if it bounces significantly within a few days, otherwise hold long term.


I am long FB.


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Buying FCAU on Electric and Self Driving Expectations

Except Tesla, almost all automotive companies are currently trading at historically low multiples (PE below 10). For a good reason: The market, including myself, expects huge changes in the industry, by the advance of self driving and electric cars. Adding to that, most car makers have high debt levels and low margins already. As Elon Musk repeatedly pointed out: Tesla and Ford are the only US automakers that have not filed for bancruptcy protection yet.

I think those bad expectations are more than sufficiantly priced in and am buying FCAU after the recent pullback because they are cooperating with Google/Waymo on self driving cars and I think they are probably ahead of everyone else (with the possible exception of Tesla) in that field; Also, FCAU dramatically improved their balance sheet buy paying down billions of debt over the past few years.

Bought at 16.39, will sell if it bounces significantly within in a few days. Otherwise hold long term.


I am long TSLA and FCAU and GOOGL


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's more like a documentation of and an explanation for my own trading.) I do not know the future either.

Mittwoch, 10. Oktober 2018

US-China Trade War: Buying BYD and Xiaomi

While Hong Kong stock market continues to be near multiyear lows, I think news about "trade war" are about to ebb. So I think this is a good opportunity to buy Chinese Companies at the Hong Kong stock exchange. After buying agribusiness company China Agri-Industies about 2 weeks ago I am adding some tech stocks today.

Both are pretty well known (BYD mainly for being backed by Buffett, Xiaomi for being one of the fastest growing smartphone makers), without any recent news events that would have made them overpriced highflyers, so I think they have been trading near fair value; both don't sell a lot in the US, so the whole Trump tariff game won't hit their results significantly. Still, trade war news have been dragging both stocks down with the market.

Bought BYD at 50.05 (HKD); Xiaomi at 13.8.


I am long BYD and Xiaomi.


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Donnerstag, 27. September 2018

Buying Agribusiness Stocks While Agri Commodities are Down

I am not going to put much effort into writing a long post about this as I think only few people are interested in this area. I'm buying agricultural stocks because they have been in a sideways or down trend for years (except US agri stocks, which tended to move up with the broader market).

With oil price on the rise, agricultural commodity prices will follow sooner or later, because sugar (ethanol) and vegetable oil will increasingly be used so replace gasoline and diesel.

Many agri stocks and commodities prices peaked around 2014 when oil price (WTI) was above $100 per barrel. Oil companies stocks did too. And while many oil stocks recovered with rising oil, agri is still down. I expect that to change. I decided to pick the big asian players, because they are at extra bargain levels since US-China trade "war" makes news on a daily basis (which I expect to fade).

I'm buying Wilmar and China-Agri. (The latter is a spin off from China's state owned COFCO. I usually don't like buying state owned or affiliated stocks, but I make an exception for this one because it looks really cheap.)

I might short oil or oil companies' stocks as a hedge in the future, but I expect them to rise a little more until they peak again so I'm waiting.

I am long Wilmar International and China-Agri Industries.

Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only a documentation of and an explanation for my own trading.) I do not know the future either.

Mittwoch, 26. September 2018

Buying GOOGL Because FANG Uptrend is Broken

I have a long history investing in Google. My first encounter with the stock was shortly after its IPO, when it was only a search engine (albeit a very good one, already dominating that market). I dared to short it then (via put options) because I remembered very well that only a few years before "Altavista" and Yahoo dominated the internet search business and I did not see why a search engine company should be valued above 20 billion dollars, when obviously a few years later the next leader will arise and displace it.
That didn't turn out to be a profitable bet (as you might already have guessed). It took me a while to see and understand why Google was here to stay but eventually I got it and switched sides to become a GOOG shareholder - and stayed that for many years.

Can't grow forever

Only in recent years did i trade in and out of the stock because, obviously, the company can't grow at a 15-20% rate forever (and the stock's valuation still assumes significant growth at least for a few more years).

Or, can they?

What made me change my mind again is to see what Alphabet did with "Youtube Kids". As the father of a two year old I can tell: Kids love it. I would even say, I am not aware of any other product that can entertain a child of that age in an equally addictive way (you better hide that option from your kids as long as possible!).

Of course, Youtube Kids is not worth a trillion dollars. But it is a good example how Alphabet has been diversifying its business from search. They don't stop creating products almost everyone uses almost every day.

And this company does not only invent great products (actually, they did not even invent online search). But they have tens of thousands of very capable engineers and so they have managed to make things that already existed before so much better that nobody could compete with Alphabet's product. Which is quite impressive, because the competitors they beat are also multibillion dollar tech companies, the likes of Microsoft (who they beat in the browser market although Internet Explorer had a head start and came bundled with the almost-monopoly desktop operating system Windows. Still Chrome became dominant; as Android did in mobile OS).

What the market is missing

Ok, we already have a market cap of 830 billion dollars (enterprise value 100 b lower - they have a huge cash balance) with multiples (PE, P/S) nowhere nearly suggesting a "value bet". This clearly isn't a hidden gem.

But I think there are still areas into which Alphabet can grow at fast pace, which are not fully appreciated by the market (banking, for example).

By many investors, GOOGL is seen and treated as part of "FANG" or "FAANG" (Facebook, Amazon, Apple, Netflix, Google) - but while i do agree that F, A (Apple) and N might stop growing as early as next year, I think G is different.

I'm buying below 1200.


I am long GOOGL.


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendationit's only an explanation for my own trading.)
I do not know the future either.

Dienstag, 18. September 2018

XON Continues to Disappoint - I'm Buying

I took a stake in Intrexon, another once overhyped company that has come down to what I view as fairly valued. (No time to write about the company in detail. Here ist their website: www.dna.com)

Contrarian Aspect

Intrexon has a long history of making its shareholders believe a "big deal" is just around the corner; and it has kept disappointing so far. Delivered another year-over-year revenue DROP last quarter.

Market expectations have come down to realistic - maybe even slightly pessimistic - levels, i think.

I think share price movement after last cc has been an indication that even with no news, the bottom seems to be around 13.

I'll give it a try. (Buying at $14.3 per share)

Intrexon's CEO Kirk is known to be somewhat overpromising (another similarity to my first pick TSLA) but I do think he is not completely off when he says their energy division alone is worth more than their current market cap.


I am long XON.


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only an explanation for my own trading.)
I do not know the future either.

Freitag, 14. September 2018

New Page "About this blog" added

Here I explain what I am doing (or intending to do) with this blog and why.

UPDATE SNAP: Stopped out of Short Position

I had placed a tight stop - and decided to stay out with a small loss, after SNAP advanced 3% quickly, without any news and against broader market (which was down slightly at this point).

As I have no plausible explanation for this movement, I conclude that the basic reason I sold (that yesterday it basically spiked on upgrade only and this would be VERY short term) was wrong. SNAP might be so oversold that a bounce is likely. Or of course, I missed something that is a more substantial reason for a bounce.

Covered at 9.59

Donnerstag, 13. September 2018

SNAP: Shorting on Upgrade, Buyout Hopes

I decided to short some SNAP shares at $9.30 per share.

Basic reasons I am negative on SNAP

User numbers are down, quarterly losses are still high. This company still isn't anywhere near being profitable (losses still even exceed revenue) and it looks like Snapchat has already had its peak in popularity among the fast moving community of social media users (remember Myspace? ICQ?). I don't see any significant advantage that could make SNAP compete successfully against Facebook/Instagram (which in turn have the giant advantages of billions in cash and positive cash flow and a vastly larger user base) in the long run.

Contrarian Element

I still did not short it until today (September 13, 2018), because I thought it's TOO obvious.
Analyst remarks (and following news articles today) about a possible bottom and a possible buyout (which i think isn't likely at 10 billions with a shrinking user base) convinced me there is still enough optimism in the market to make SNAP have enough room to fall further.
Usually, buyout hope (unless based on a concrete offer) alone is a very bad investment thesis. When a company's stock looks unattractive, more often than not the company as a whole looks unattractive as a buyout candidate as well, for the same reasons.
We are still in a bull market, especially technology stocks, but i don't think the market is bullish enough regarding social media at this point to find a buyer willing to pay $10b for what might easily turn out to be the "next ICQ".

So I shorted some.

I am short SNAP stock.
This is only my opinion of course. I don't know the future. You should do extensive research on your own before making investment decisions.

[UPDATE: stopped out already, at 9.59]

Dienstag, 11. September 2018

Tesla Update: Adding on Downgrades

Not even a week has passed since I wrote my first blog post (ever), about Tesla valuation and sentiment.

Within those few days, insideevs posted an article about August EV sales, in Tesla's case estimates (which would make the Model 3 the bestselling model in the US by revenue for a single month - ALL cars included, not only electric. Elon Musk shared those estimates, so chances are they are not far off from actual deliveries); Tesla's CAO left after only one month; Musk drank whiskey and puffed marihuana on a podcast; Nomura and others downgraded the stock; Musk wrote in an e-mail to employees that production and deliveries in this quarter (which ends in two weeks from now, so he should not be too far off) would be more than double q2's numbers; wrote a tweet that they reduced available colours for Model 3 to simplify manufacturing (which in my view points to another production ramp; probably paint shop has been a bottleneck to significantly exceed 5k Model 3 a week).

My take: For my investment thesis (solid growth, profit near, p/s low), Q3 guidance clearly outweighs all other news, because it is another hint that sales are strong and breakeven point could be near (or even already crossed). Nomura downgrade moved stock price below 280 again today (where i wrote my previous post). So i am adding to my TSLA long position here.

I expect current weeks to be the peak regarding Elon Musk "erratic" behaviour news. (Because 1. He obviously has already realised shareholders desperately wish he was more careful, especially on twitter. 2. People tend to get bored by this kind of news, so media, at least financial media will stop covering everything he does in detail.)

Mittwoch, 5. September 2018

TSLA a Value Buy? 2019 P/S below 1.5

The Story

Everybody who has been following market news, or actually any news in recent past is probably familiar with the basic story of Tesla. They have been the market leader in electric cars in the US (lately by a huge margin, scoring about 50% of all EV sales in August), have a semi and a pickup truck in the pipeline; claim to already have finished in house developed AI chips that make its computers 10x faster - at the same cost - than with previous hardware bought from suppliers (Nvidia); plans of adding self driving capabilities and being a leader in fully autonomous driving and "MaaS" (mobility as a service) in only a few years; they are also selling solar roofs and battery storage systems for homes and businesses and predict their "energy" division to grow faster than and eventually be as big as their auto business.

For an experienced investor, the Tesla story looks too good to be true, obviously it's one of those "story stocks" - if not the story stock - with a highflying fantasy valuation nowhere near reflecting business reality. In my opinion, this is what TSLA was, but these times have passed.

Contrarian Thoughts

Even among my friends and family there is always somebody immediately responding "it's an overvalued hype stock!", "it's a bubble!", or something similar whenever there is a conversation about Tesla. Often these people are not into investing at all, but "Tesla is an overvalued hype stock" wisdom has spread from the investment community over mainstream media to "common sense". as a consequence, it is no longer true (as I will explain in more detail).

Not many companies (I would even say: no other company) have to deal with more skepticism than Tesla. That every journalist in the world has been informed that there might be something like a cult around this company and its leader was only the beginning of a movement that is, to my knowledge, unprecedented in stock market history.

The #TSLAQ Community 
Tesla has always had its share of short sellers (which by the way is generally not a sufficient reason to buy a stock, as stocks with high short percentage of float do not always go up - on average they even tend to underperform the market. there is no "short squeeze automatism"), but at some point, with this company, something unique set in.

As mainstream media hosts in recent years increasingly realised that Tesla might be a bit overhyped - to be fair: this was to a large extent because its CEO has kept making promises he regularly could not fulfil in time - and (with good intent) more and more often invited bearish analysts and high profile short sellers like Jim Chanos, public sentiment started to turn as well. And besides the broader public becoming more skeptical about tesla and musk's promises, a new dedicated anti-Tesla community developed on social media: the "#TSLAQ" community. (the "q" is added to a stock ticker to signal to investors that the company has filed under chapter 11, bankruptcy, which in almost every case means the future value of the stock is 0.)

These are people who not only think that Tesla is going down (and accordingly sold the stock short or bought puts to profit from it), they are actively trying to help bringing the stock down. Which by itself is still not unusual: exactly like long investors use to promote their picks in every possible way, short sellers have always used to search for and publish negative information about companies, ever since short selling exists.

What is new is that it's not some single investors promoting their short selling idea, but it has become a movement (thanks to social media) and part of mainstream media is supporting it. This is not just some big short sellers with money to buy some negative news. It's a crowd, including many retail investors (i have seen many "this is the first time ever i shorted a stock" on stock message boards) who genuinely think they are doing good when they help exposing Tesla's mistakes. The result is a flood, a tsunami of negative news bits coming from twitter, financial message boards, financial blogs (like zerohedge) - and larger news agencies (sometimes picking up something from a bearish blogger, but sometimes doing extensive research and finding "whistleblowers" to have their own "scoop").

The short selling community has (although lacking a leader) become a "cult" of its own, with plenty of members dedicating their spare time on their "cause" (which is bringing Musk and Tesla down) with great passion.

Mainstream Media
You probably also noticed that recently some (more or less) mainstream media outlets no longer seem to be even trying to produce balanced reporting about Tesla, instead have been writing openly negative - Business Insider most obviously, but also big names like Reuters and the New York Times are repeatedly writing "hit pieces". (Reuters is especially influential outside the USA, as there are many news outlets in Europe who don't do own research about US business, but traditionally use big agencies like Reuters as their sources.)

I do not think any of those journalists are getting bribed by short sellers (or are selling large amounts of stock short themselves) to write negative articles against Tesla and Musk. Some are doing it with best intent, they still think Tesla is an overhyped fantasy stock and company and they have to educate the public, others simply hate Elon Musk (it did not help that he explicitly accused one journalist of bribery this year. That naturally spurred solidarity within the occupational group. Nor did it help that he announced plans for a "Pravduh" project, by which he intends to expose bad journalism) and, not to forget, every Tesla story is making a lot of clicks, which equals money for online news outlets.

The situation has become so wild that there are already websites tracking and trying to quantify negative articles without actual news content. (Maybe a trading strategy can be derived from that, but i am not sure yet.)

I am not here to judge about ethical (or even legal) implications of biased journalism, i'm not even sure about what my own judgement would be. It's not a genuinely bad thing that short selling acts as an incentive to report flaws of business models and business execution. Basically, this is what business journalism should do in first place.

For me the important question is, has this gone unusually far, has it visibly moved tesla's valuation in the stock market, and, therefore, has it created an outstanding investment opportunity?

There are so many Tesla Memes, repeatedly used by even not explicitly bearish commentators on CNBC, usually unquestioned, that are not (no longer) true, but - at least to some degree - all priced into the company's current valuation because people are hearing them on a daily basis - some examples:

  • "It's a cult stock" (Yes, Tesla has a fan base, but since also it has a loud hater community, they neutralise each other in terms of stock valuation),
  • "It's an auto stock, it should be valued like an auto stock" (Yes, Tesla's main business is selling cars. This does not mean it should have a Price to Sales Ratio of 0.5, as some "experts" suggest. Car companies often have these multiples, but not because they are selling cars - they have them because their revenues or margins have not been growing for years and their future prospects look dim because everybody expects EVs and self driving to change the industry),
  • "Competition is coming" (Yes, more car makers are bringing electric vehicles to the market. But it's a fundamental misunderstanding, Tesla would be competing within the EV market. Those tens of thousands lining up to wait months for a Model 3 are not buying it because they desperately wanted an EV and then decided that Tesla might be a good choice among those: they are buying an EV because they want a Tesla. Tesla is competing against all kinds of cars. Competition has been there all the time.),
  • "Demand will come down" (Yes, demand might eventually slow down at some point - from a level so high that they are nowhere near being able to fulfill it: within weeks after announcing Model 3 they had hundreds of thousands customers willing to put down $1000 and wait two years for the car - without even having seen one in real life. It's been one of the most in demand products in history. It looks highly improbably that suddenly, when there is no waiting time, when you can simply go to a Tesla store, make a test drive and buy the car, no one would want it. My estimate is that they could in the USA alone sell all the cars they can produce for the foreseeable future - but they still have to fulfil hundreds of thousands of international orders as well),
  • "They are behind everyone else in autonomous driving" (This opinion stems from 2017 research by Navigant, whose criteria was "vision; go-to market strategy; partners; production strategy; technology; sales, marketing, and distribution; product capability; product quality and reliability; product portfolio; and staying power". This was not about technology. When actual performance is tested, currently Tesla seems to be ahead at least with their lane keeping assistant - but I think it is still to early to judge who will win the self driving race. By the way, my bets are on Tesla and Google: Tesla has the advantage of more real world data by it's semi autonomous fleet on the road and, possibly, their new AI chip, while Google has the advantage of being overall AI technology leader.)
  • "Elon Musk is out of his mind" (Yes, Musk had his outbursts on twitter that did not help his reputation. Notably, his way to communicate the idea of taking Tesla private clearly was a mistake. And he, in many cases, showed he has a hard time with simply saying "Sorry, i was wrong on that", which would, in my opinion, dramatically improve public opinion about him. But, in my view, what the media and the public make of all that  is way overblown - one revealing example was reception of his showing emotions at one point when he talked about not seeing his children because he worked to hard, which the NYT famously described in an article about an interview. He is an emotional human being, he is often overly optimistic about what his company can achieve - btw, analysts already have discounted his optimism in their own TSLA sales estimates, for years - and he still has to learn to be less impulsive on twitter and to immediately apologise when he failed in this respect. But he clearly is not "insane" and he is not a "pathologically lying con-man". By the way, the president of the US, who I explicitly dislike for his political opinions (e.g.) on climate change, is not insane either.)
  • "Tesla is going bankrupt in a few months" (While nobody can look into the future of car sales and nobody from outside can look into Tesla's books, this is one more idea that looks extremely unlikely from a neutral position. Even IF it is another "lie" from CEO and CFO, which many TSLA bears certainly believe, that they are cashflow positive and profitable in the second half of the year and they therefore not only need no new financing, but will be able to repay some debt, this is still far from being the final curtain for Tesla. They could still pledge their "crown jewels", as bloomberg suggests or raise cash from investors. I still think there is a high chance they won't have to do either, because their margins should significantly go up on a more mature production process over the next few months, and this quarter because of selling mainly the most expensive, higher margin versions of the model 3. which leads me directly to...)
  • "They are losing money on every single car they sell" (Tesla already had a couple of breakeven or nearly breakeven quarters. That was shortly before they ramped up Model X production, when Model S started to become profitable and shortly before Model 3 ramp. So, obviously, they are making money on selling Model X and S already and their losses are due to introducing new models. Production was extremely inefficient in the beginning of Model 3 ramp, Tesla is almost famous for the amount of scrap they produced then. But, of course, it is becoming more efficient over time, probably already profitable at the moment i am writing this, almost certainly later this year. Even Tesla critics admit Model 3 has the potential for significantly higher margins than their previous models.)
"Overvalued fantasy stock"?
So, is Tesla still "one of those highfliers", with "fantasy valuation", based on highly vague future projects advertised by "con-man" Musk? At this point, you won't be surprised that my answer is, clearly, No. It isn't, since market has, because everything i wrote above and more, after discounting most of Tesla's future business opportunities, began to discount even what Tesla has already achieved.
At the moment I write, nearly 40k Model 3 have been produced in the ongoing quarter and Tesla seems to be in line with their guidance of 50-55k for total q3, according Tesla Motors Club - Model 3 Production Tracker and Bloomberg.

Average selling price of these cars is well above 50k per car, i estimate 60k for this quarter because of a mix strongly leaning to AWD performance version.

Last year's q3 revenue was about $3b, without a significant number of Model 3 produced. If other revenue approximately is the same as last year (which i think it will be), this makes revenue probably come in at 6b this quarter.

I further estimate they will moderately grow production again next quarter, to about 5.5k-6k Model 3 per week and then to 7k in q1 and 8k in q2 and start delivering to international customers. Expect selling price to come down significantly in 2019, because they will finally introduce the long promised base version at 35k (few will actually sell at this price, because almost everyone who wants to have a Tesla will want to have the autopilot package as well). I expect 55k in q1 and then 50k.

Assuming Tesla won't sell a significant amount of solar roof or battery storage, which is rather pessimistic in my view, they will still increase q4 revenue by about $3.5b from 2017, $4b year over year in q1 2019 followed another 4b in q2.

This would make revenue growth rates come in at about 100% for each of the next three quarters (until year over year growth numbers slow because Model 3 already sold in significant numbers in the previous year quarter; I expect 2020 to be a year of slower gains, with growth picking up again in 2021 with china factory, Model Y, Roadster, Semi; I expect the pickup truck a year later; I'm not sure if solar roof or batteries will make significant revenue, but they might).

Let's not talk about the distant future but stick with what we can predict with pretty high probability: 2019 revenue will be significantly above 30 billion $ and this will be obvious already in a few months; moreover, 2019 should be a highly profitable year because i don't expect significant production of Y and Semi until 2020. Market currently (9/6/2018) values TSLA at 48 billion. This is slightly more than 2 times 2018 and I estimate lower than 1.5x 2019 sales. Its valuation is very down to earth.

What the market is missing
News are currently too much focused on Musk's tweets and weekly or even daily production numbers (any other product in the world where bloomberg would try to track weekly production?), accidents, fires, issues with more or less potential impact but virtually all of them short term or singular events (which naturally make the daily news), overshadowing the big picture:
Tens of thousands of Model 3 are just beginning to flood the market. This is real, not "Musk cult" fantasy. And it's not going to stop anytime soon. The more cars on the road, the more people will become interested in the car AND the stock, instantly raising demand for both; news could turn to sales numbers, new upgrades (v9 software, new hardware coming in a few weeks) and new products (y) very fast - in case Musk manages to not insult somebody or tweet anything else that shows he still does not fully understand his responsibility as CEO of a multibillion $ company (that is as closely watched as no other, because retail is overinvested on both side of the trade - people with little stock market experience have invested all their live savings in this one company, while newbie shorts bet more than they can afford to lose on the other side as well).

I don't think the software update or new production records or the new in house developed AI chip or y or semi, self driving Tesla fleets or utility scale energy projects... i do not think any of those future products are unappreciated by observers. Everybody knows these hopes are part of the Tesla story.

What broad market is still missing is that Tesla's valuation is no longer based on these hopes. they are already selling more than 20000 cars a month (almost all of them with a price tag well above $50k). In my opinion you can easily justify the current market cap of 50 billion simply implying the products they are already selling will continue to sell Ok. As customer satisfaction is still outstanding (customers, on average, really love those cars - and reviewers do as well) and they also still have some hundreds of thousands of international orders to fill, there is not much doubt they could do that. (Of course they will add new products, of course they will build a factory in China, of course they are not going to settle with what they already have achieved. I just want to show that the investment story is changing. This stock has value based on real, fast selling products, already on the road. An exciting product pipeline on top of that - is no longer their only asset to win investors.)

Stock Price Potential

As explained above, I expect Tesla's 2018 revenue to top $20b this year and 2019 revenues to grow by more than 50% once again; I expect sustainable (at least until Model Y production ramp) profit from q4 2018. I would not dare to predict a PE, because I think not even Tesla's CEO Deepak Ahuja could precisely predict the margins for 2019. It's still too early to be looking for stable predictable profits in this company as long as they continue to introduce new products. I would wait for 2025 when they have built all their planned factories to value this by PE. Until then, it should be enough that they stop burning cash and apart from that I look at price to sales. I think a p/s of 2.5 or higher should be in the cards as long as the company is growing fast (my prediction: at least for 5 more years). So with revenues of 35b in 2019 it would be valued at near 90b by the end of next year.

So about $550 per share looks possible.


Until Tesla actually is as sustainably profitable as it predicts to be, there will always be a chance for the company to fail financially. This it is not a pure short seller's fantasy. Tesla has almost 10b in debt. Although this scenario looks highly unlikely to me, given a big community (including some big pockets) supporting Elon Musk's masterplan and ready to lend or invest a couple of billions if necessary, you should not completely rule it out.

I think there is a high probability for the stock to double in a year, which - for me - justifies taking the risk and buy it now. But I definitely would not buy it on margin and I would not bet more than I can afford to lose completely.


There are two highly biased communities invested in this stock. Probably more inexperienced investors are short TSLA than have ever been short any other stock in history. It also still has many inexperienced investors betting all their money and more that Musk will succeed. But it's no longer the typical hype stock with fantasy valuation, no longer "priced to perfection". The "TSLAQ" camp has been dominating public sentiment for weeks. CEO Musk has added with some ill-considered tweets about an ill-considered privatization that did not happen. This made valuation come down to reasonable - in my opinion even bargain - levels.

At a market cap of 50b, with 20b in revenue this year, still growing fast, probably on the brink of profitability, I am buying TSLA.

Stock TSLA
Rating Buy
Price Target 550
Current Price 280


I am long TSLA.


Of course, everything I write is only my opinion and should not replace your own research. (It's not even a recommendation, it's only an explanation for my own trading.)
I do not know the future either.