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Frankly Tesla would be stupid not to issue as much stock as possible when it's trading far above its intrinsic value.

by IBM 11y ago

celticninja 11y ago
Why do you think it is trading far above its intrinsic value? How much is a share currently worth?
- benmanns 11y ago
  And why isn't everyone who knows that shorting it?
  - smackfu 11y ago
    Maybe they are, Tesla has a lot of short interest.
  - peteretep 11y ago
    Because the market can stay irrational far longer than you can stay solvent... Saying that a share is overvalued against its "intrinsic" value is not saying the share is overvalued or will go down, it's just saying that it's currently being priced with an expectation the company will be worth more in the future.
    - kgwgk 11y ago
      > Saying that a share is overvalued against its "intrinsic" value is not saying the share is overvalued It is exactly what it means [1] > or will go down. The intrinsic value of a lottery ticket is below the price you pay, it doesn't mean you can never win. That said, nobody knows the intrinsic value. In the case of TSLA you have a range of sell-side analysts telling you it's somewhere between $178 and $400. (Edit: to be fair, probably they are using multiples [2] and not a proper intrinsic value calculation. A DCF doesn't get you very far in the current market, much less so in companies like Tesla. For a discussion based on fundamentals see [3]). [1] https://en.wikipedia.org/wiki/Intrinsic_value_(finance) https://en.wikipedia.org/wiki/Intrinsic_value_(finance) [2] https://en.wikipedia.org/wiki/Valuation_using_multiples https://en.wikipedia.org/wiki/Valuation_using_multiples [3] http://aswathdamodaran.blogspot.ch/2014/03/return-to-firing-line-revisiting-tesla.html http://aswathdamodaran.blogspot.ch/2014/03/return-to-firing-...
  - IBM 11y ago
    Are you aware that 25% of TSLA's float is short? That's insanely high.
  - squeak 11y ago
    Intrinsic value is something of a misnomer; in reality it simply means: I've done some sort of analysis, looked at the future cash flows, and discounted them back to the present at some rate. In reality there is nothing intrinsic about it; your valuation is your opinion about the future based on a multitude of assumptions, nothing more. But even if your valuation is remarkably different than the public markets it does not then follow that you should short; this ignores the importance of time in making a good investment decision. This is compounded by the fact that shorts and options are incredibly effective means of losing lots of money in a short amount of time.
  - cdash 11y ago
    People actually have been shorting Tesla for a long time. The problem is they keep getting burned on it.
    - nemo44x 11y ago
      In fact some would say the stock is trading at these levels due to a prolonged 2-year short squeeze. The initial squeeze brought in new retail (and institution) investors forcing margin calls which in turned raised the price more creating more short sellers and retail longs. I bought stock and options when this was trading at 35 and sold at around 140 as I put my fair market value at about 125 for this company. Would gladly reenter at that price.
- IBM 11y ago
  Markets are inefficient and frequently overvalue/undervalue companies. Lots of companies in tech and biotech are overvalued right now including Tesla. I haven't valued Tesla since 2013 but it was overvalued then so it went into the "nope" pile and I haven't looked at it again since.
  - hueving 11y ago
    Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
  - hueving 11y ago
    Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
  - hueving 11y ago
    Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
  - hueving 11y ago
    Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
  - rjtavares 11y ago
    I'm not one to demand that people start every sentence with "IMO", but that second sentence really needed it...
- exelius 11y ago
  Nobody knows what the intrinsic value actually is -- you can try to model it with historic cash flows, but it's very inaccurate to do that with a company without a solid cash flow trend. But because its enterprise value to revenue multiple is way, way out of whack with respect to normal companies, it's a pretty safe bet that there's a lot of expectations priced in to the stock. That's not inherently a bad thing, and in fact it is normal for young companies, but what it really means is that much of the growth potential of Tesla is "priced in" to the share price, meaning that if you buy TSLA at current prices, it may not rise all that much in the event they are wildly successful. If they are anything less than that, the share price could drop dramatically. Tesla right now is a bet that their battery technology will be insanely profitable and have some sustainable advantage over competing technologies. It's an interesting stock to play with as part of an algo strategy because it's so volatile (again, this is typical of young companies), but I wouldn't own TSLA as a buy-and-hold right now. The share price is just too expensive, and they're going to need massive, continued infusions of capital to continue (as evidenced by the article). Basically, the risk with Tesla is that if they are crazy profitable, their share price likely won't rise all that much because investor expectations are high. If they are not crazy profitable, the share price will drop over time.
  - gchokov 11y ago
    Very good analysis and bonds well with my thinking as well. For me, TSLA doesn't have the fundamentals to be so expensive. In theory, TSLA shareholders are actually losing money right now if you exclude the share price movement by speculation.
rbinv 11y ago
How would you know its true value? You must be massively short TSLA, then?
matt4077 11y ago
The efficient market hypothesis would like to have a word with you.
- czbond 11y ago
  Theory and reality don't often match
  - desdiv 11y ago
    In theory, they always do. But in reality...
- harryh 11y ago
  While I agree with you a lot more than the parent comment this brings to mind one my my favorite quotes. Larry Summers on the EMH: "THERE ARE IDIOTS. Look around."
- wazoox 11y ago
  As you perfectly expressed, "efficient market" is nothing more than an hypothesis. In fact, it has been proven essentially false repeatedly, theoretically by Kahneman among others, and in practive through many a crisis, bubble, etc. Arguably "mainstream economics" could be nothing more than a religion, and a very dangerous one by its very high though undeserved power.
- mikeash 11y ago
  I sometimes wonder if people who talk about the "efficient market hypothesis" understand what the third word in that phrase actually means....
jusben1369 11y ago
I always find "intrinsic value" is a very strange way to interpret stock price. All stock prices are trying to predict the future not the present. With large, older, stable companies it gets easier and easier to predict the future "This company is growing by 10% per year so in one year it should be worth 10% more all things being equal and its peers as a group are trading at some multiple (usually profit) so if I think it's at that multiple (or better yet less) and I think 10% is a good return for my money over 1 year then I'll buy some." With new, rapidly growing, highly speculative companies in big markets (auto, space, energy) it becomes very difficult to predict where they'll be in 1 - 5 years. Investors are still (typically) intelligent and will look at what other disruptive companies have done in the past, look at the management team and leadership etc and place a "bet" on the stock. Because these companies are sometimes growing 50% to 100% per year and someone is happy to hold a stock for 3 - 5 years they will pay a substantially high price for stock in terms of _today's_ revenues or profits. It doesn't mean they won't get it wrong - ie if a company falls to growing "just" 40% per year that makes a huge difference 3 years out. It doesn't mean that the stock price for the new stock is any more or less correct than for the older more stable company. it just means it's much more likely to fluctuate over the next 3 - 5 years as risk and upside is better priced in with more knowledge in place.
lectrick 11y ago
> intrinsic value My experience with Bitcoin has caused me to smile every time this turns-out-it-is-completely-bullshit concept is thrown around All values are subjective. All of them. There is no "real" or "intrinsic" value (except by consensus agreement of subjective values). The emperor wears no clothes, and there is no rabbit in the hat. Unless we consensually believe there is, that is.

Frankly Tesla would be stupid not to issue as much stock as possible when it's trading far above its intrinsic value.

by IBM 11y ago

Frankly Tesla would be stupid not to issue as much stock as possible when it's trading far above its intrinsic value.

celticninja 11y ago

Why do you think it is trading far above its intrinsic value? How much is a share currently worth?

benmanns 11y ago
And why isn't everyone who knows that shorting it?
- smackfu 11y ago
  Maybe they are, Tesla has a lot of short interest.
- peteretep 11y ago
  Because the market can stay irrational far longer than you can stay solvent... Saying that a share is overvalued against its "intrinsic" value is not saying the share is overvalued or will go down, it's just saying that it's currently being priced with an expectation the company will be worth more in the future.
  - kgwgk 11y ago
    > Saying that a share is overvalued against its "intrinsic" value is not saying the share is overvalued It is exactly what it means [1] > or will go down. The intrinsic value of a lottery ticket is below the price you pay, it doesn't mean you can never win. That said, nobody knows the intrinsic value. In the case of TSLA you have a range of sell-side analysts telling you it's somewhere between $178 and $400. (Edit: to be fair, probably they are using multiples [2] and not a proper intrinsic value calculation. A DCF doesn't get you very far in the current market, much less so in companies like Tesla. For a discussion based on fundamentals see [3]). [1] https://en.wikipedia.org/wiki/Intrinsic_value_(finance) https://en.wikipedia.org/wiki/Intrinsic_value_(finance) [2] https://en.wikipedia.org/wiki/Valuation_using_multiples https://en.wikipedia.org/wiki/Valuation_using_multiples [3] http://aswathdamodaran.blogspot.ch/2014/03/return-to-firing-line-revisiting-tesla.html http://aswathdamodaran.blogspot.ch/2014/03/return-to-firing-...
- IBM 11y ago
  Are you aware that 25% of TSLA's float is short? That's insanely high.
- squeak 11y ago
  Intrinsic value is something of a misnomer; in reality it simply means: I've done some sort of analysis, looked at the future cash flows, and discounted them back to the present at some rate. In reality there is nothing intrinsic about it; your valuation is your opinion about the future based on a multitude of assumptions, nothing more. But even if your valuation is remarkably different than the public markets it does not then follow that you should short; this ignores the importance of time in making a good investment decision. This is compounded by the fact that shorts and options are incredibly effective means of losing lots of money in a short amount of time.
- cdash 11y ago
  People actually have been shorting Tesla for a long time. The problem is they keep getting burned on it.
  - nemo44x 11y ago
    In fact some would say the stock is trading at these levels due to a prolonged 2-year short squeeze. The initial squeeze brought in new retail (and institution) investors forcing margin calls which in turned raised the price more creating more short sellers and retail longs. I bought stock and options when this was trading at 35 and sold at around 140 as I put my fair market value at about 125 for this company. Would gladly reenter at that price.
IBM 11y ago
Markets are inefficient and frequently overvalue/undervalue companies. Lots of companies in tech and biotech are overvalued right now including Tesla. I haven't valued Tesla since 2013 but it was overvalued then so it went into the "nope" pile and I haven't looked at it again since.
- hueving 11y ago
  Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
- hueving 11y ago
  Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
- hueving 11y ago
  Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
- hueving 11y ago
  Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
- rjtavares 11y ago
  I'm not one to demand that people start every sentence with "IMO", but that second sentence really needed it...
exelius 11y ago
Nobody knows what the intrinsic value actually is -- you can try to model it with historic cash flows, but it's very inaccurate to do that with a company without a solid cash flow trend. But because its enterprise value to revenue multiple is way, way out of whack with respect to normal companies, it's a pretty safe bet that there's a lot of expectations priced in to the stock. That's not inherently a bad thing, and in fact it is normal for young companies, but what it really means is that much of the growth potential of Tesla is "priced in" to the share price, meaning that if you buy TSLA at current prices, it may not rise all that much in the event they are wildly successful. If they are anything less than that, the share price could drop dramatically. Tesla right now is a bet that their battery technology will be insanely profitable and have some sustainable advantage over competing technologies. It's an interesting stock to play with as part of an algo strategy because it's so volatile (again, this is typical of young companies), but I wouldn't own TSLA as a buy-and-hold right now. The share price is just too expensive, and they're going to need massive, continued infusions of capital to continue (as evidenced by the article). Basically, the risk with Tesla is that if they are crazy profitable, their share price likely won't rise all that much because investor expectations are high. If they are not crazy profitable, the share price will drop over time.
- gchokov 11y ago
  Very good analysis and bonds well with my thinking as well. For me, TSLA doesn't have the fundamentals to be so expensive. In theory, TSLA shareholders are actually losing money right now if you exclude the share price movement by speculation.

rbinv 11y ago

How would you know its true value? You must be massively short TSLA, then?

matt4077 11y ago

The efficient market hypothesis would like to have a word with you.

czbond 11y ago
Theory and reality don't often match
- desdiv 11y ago
  In theory, they always do. But in reality...
harryh 11y ago
While I agree with you a lot more than the parent comment this brings to mind one my my favorite quotes. Larry Summers on the EMH: "THERE ARE IDIOTS. Look around."
wazoox 11y ago
As you perfectly expressed, "efficient market" is nothing more than an hypothesis. In fact, it has been proven essentially false repeatedly, theoretically by Kahneman among others, and in practive through many a crisis, bubble, etc. Arguably "mainstream economics" could be nothing more than a religion, and a very dangerous one by its very high though undeserved power.
mikeash 11y ago
I sometimes wonder if people who talk about the "efficient market hypothesis" understand what the third word in that phrase actually means....

jusben1369 11y ago

I always find "intrinsic value" is a very strange way to interpret stock price. All stock prices are trying to predict the future not the present. With large, older, stable companies it gets easier and easier to predict the future "This company is growing by 10% per year so in one year it should be worth 10% more all things being equal and its peers as a group are trading at some multiple (usually profit) so if I think it's at that multiple (or better yet less) and I think 10% is a good return for my money over 1 year then I'll buy some." With new, rapidly growing, highly speculative companies in big markets (auto, space, energy) it becomes very difficult to predict where they'll be in 1 - 5 years. Investors are still (typically) intelligent and will look at what other disruptive companies have done in the past, look at the management team and leadership etc and place a "bet" on the stock. Because these companies are sometimes growing 50% to 100% per year and someone is happy to hold a stock for 3 - 5 years they will pay a substantially high price for stock in terms of _today's_ revenues or profits. It doesn't mean they won't get it wrong - ie if a company falls to growing "just" 40% per year that makes a huge difference 3 years out. It doesn't mean that the stock price for the new stock is any more or less correct than for the older more stable company. it just means it's much more likely to fluctuate over the next 3 - 5 years as risk and upside is better priced in with more knowledge in place.

lectrick 11y ago

> intrinsic value My experience with Bitcoin has caused me to smile every time this turns-out-it-is-completely-bullshit concept is thrown around All values are subjective. All of them. There is no "real" or "intrinsic" value (except by consensus agreement of subjective values). The emperor wears no clothes, and there is no rabbit in the hat. Unless we consensually believe there is, that is.