Thursday, November 8, 2018

Some ole tune I thunk up

A short whistling tune

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Friday, October 26, 2018

Why Tesla could likely quadruple to 1287 in two years.

Tesla has been much the hype of late, with media outlets following Elon Musk's every move.  Admittedly there has been much drama, from broken romances to smoking (not even inhaling!) pot on a radio show, to SEC shenanigans.  None of this really matters very much, however it does serve to keep Elon stimulated in a difficult to explain sort of way, that only an entrepreneur might relate to.  He shouldn't be thwarted, but should stay within the law, as he really hasn't done very much inconsistent with other brilliant minds throughout history.  What should matter to shareholders has often been overlooked, and none of it should have to do with his behavior.  What matters for the company and its future stock price really boil down to four factors, most of which can easily be tracked,  and I will try to highlight my thinking on them in this post.  They are  1) Sales, 2) Production, 3) Delivery, and 4) Execution on the relatively new category that Tesla should lead globally, Mobility as a Service,  "MAAS".  So, any analysis here on Teslas' potential does not include MAAS, which when accounted for, would otherwise reflect a higher stock price than what is analyzed in this post.

I forecast net income, EPS, Sales, Production and Deliveries in the table in the link below.  I do not consider how execution of MAAS going forward will impact valuation, because it is still largely unknown.  With more research, I will try to forecast how MAAS will impact positively on potential equity value. Given successful delivery on promises such as sales, vehicle and battery production, I run a forecast based upon a conservative growth path that tracks at a slower pace than historical growth in these areas.  Based upon that analysis, and if Tesla is able to continue that growth path, Tesla should hit a stock price of around 523 within 12 months and 1,287 within 24 months.  Please review the link to the table below to see their growth numbers since 1st Quarter 2015.

Link to Tesla Growth

Tesla recently released a stellar 3rd quarter 2018, their best yet recording $360 million in net income.  Tracking a similar growth path as quarterly revenue growth, I use a modest 25% quarterly net income growth rate to imply a $609 million in net income this time next year and $1.5 billion in net income within 24 months.  I use 25% net income growth that is implied from the revenue growth numbers that have averaged 100% per year, sometimes a lot more, so 25% is quite conservative.  I also use a 25% Earnings Per Share growth to forecast EPS out for 8 quarters until 3rd quarter 2020.  I take the forecasted annual EPS and multiply it by a conservative 50 P/E, a similar multiple to high growth technology companies.  Given that Tesla owns and operates not only car production, but also battery and solar, it should not be valued like a typical car company, but moreover like a technology company able to produce high growth. Given Tesla has been growing across most of its metrics at 25%+ per quarter or 100% per year, a 50 P/E seems very conservative, especially given that I am not even adding in any sales from deploying autopilot taxi service (MAAS).  Elon has estimated that Tesla would share in that revenue at 30% of revenue earned by individual tesla owners, but again, I am not including MAAS in this analysis.

Using a 50 P/E implies a stock price of $659.05 in 3rd quarter, 2019, and $1287.21 in same quarter 2020, again, given the company grows its net income at a somewhat slower pace than it has proven to be able to grow its revenues, production and deliveries.  Of course, there have been some major  hiccups from quarter to quarter along the way, which is typical and should be expected going forward, but the revenue growth has been remarkably smooth for a new category like Tesla has led for the past 10 years since inception.

Tesla has delivered on almost all promises to date, typically taking a bit longer than predicted, but the company delivers what is promised, nevertheless, so at this point, any risk of the company remaining a viable entity is close to zero.

The news on Elon's eccentric personality is really just a distraction from what is really important and that is the rate of growth of sales, production, deliveries and soon, execution on MAAS.  MAAS should serve to expand the valuation multiple of Tesla significantly which would imply a much higher stock price than forecasted here.

Tuesday, September 25, 2018

As I Lay Resting On The Ground

Trees growing with roots in ground,
and grass all around,
Twigs breaking with sounds abound,
rustling animals in the wind,
Shiny particles of light, reflecting off the pond,
With a wave of the wand,
As I lay resting on the ground.

Thursday, June 7, 2018

Know when to hold em and know when to fold em

One of the most difficult decisions to make in life is to know, after an extended period of time, which has become habit and comfortable, when to walk away. This concept of when to drive through the difficult moments and stay in a situation, even though it's difficult, and when to walk away because it's not healthy, or a disagreement due to ethics, principle, or a separate reason applies to any difficult decision that puts me at a fork in the road of life. The obvious easy way is to stay  and the harder way is to leave. It's taken me more than half my life to learn, that my heart typically has the answer. What I've found is that after making that hard decision, what I initially feel is fear, loss, and sadness. Very quickly though, after those feelings pass, I feel lightness, happiness, and a sense of relief and renewal. For me, this means growth, and I find that once a situation is pulling on me to stay because leaving is scary with uncertainty of what lies ahead behind that closed door,, it's time to open it up and walk through. Usually, its bright on the other side.

Friday, June 1, 2018

Madrigal, MDGL

I've owned MDGL at 52 or 53 a few months ago when I bought it recognizing a potential breakout. I made 110% on this NASH drug company after reading about the impressive team. I sold it a few days ago on technical weakness. ouch to me. When I open my account and see that its +140% this morning. The market is so humbling when something like this happens. The beat we can do is to try to take a lesson from this.

Thursday, May 31, 2018

Loving Twitter, with cheap downside protection - Love companies beaten down that have come back.

Twitter is a company I've used for many years as a user, but never really substantially owned the stock until now.  The one-year chart is just a beautiful sight to see.  For about a year's time between 2015 and 2016, the stock lost 75% of its value.  This is when users were growing exponentially, but the company was failing to grow revenue or to be profitable.  Many investors at this time were buying the stock as it was falling just knowing that the stock, because of the user growth, just had to perform.  Yet, it failed to for the next year.

I just love companies that have built up a rock-solid brand, have struggled, and then reinvent themselves.  The underlying support for the company, once they "figure it out", is what makes 5 to 10 baggers or more.  Think Amazon, Netflix, Apple.  I believe Twitter belongs in this category and the time to buy is now. 

Not only do the technicals look very strong, but the company has turned profitable, growing revenues and earnings for the past 2 to 3 quarters, AND, they've reinvented themselves and have diversified their sources of revenue. 

With 336 million monthly active users, this company is set up for multi-year equity gains.

I was talking with my cousin about this one yesterday, and he suggested buying a large position at market, but also buying some downside puts about a month out.  I bought the 31 puts and he bought the 31.5 puts.  The 31s cost me only 23c per contract.  The stock was up 53c yesterday when I bought the puts.  My rationale is that these puts are very inexpensive given the fact that the stock could rise by 50c or more in a day.  The 23c you give up for calamity, worst case insurance is well worth it. 

Odds are good that the stock will continue to rise as the company continues to figure things out, and potentially continues to diversify its revenue stream on the back of its 336 million MAUs.

This is a good one, in my opinion for all of these reasons.