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Here's a thought experiment. I'm not talking about Tesla and this situation is completely hypothetical. What would you pay for a company that currently has pro

Here's a thought experiment. I'm not talking about Tesla and this situation is completely hypothetical. What would you pay for a company that currently has profits of $10,000, but is guaranteed to grow each year 50% until they have $1T in profits. If possible give a numerical value please, what you think a) The company is worth currently b) How much would you pay for 1% of this company's stock?

rapsey 6y ago
The real question is how popular the CEO is on twitter. Stocks are nothing but a popularity contest now.
WA 6y ago
From $10,000 to $1T would take almost 46 years. Guaranteed growth of 50% per year? I mean, what’s the point of this hypothetical question if it is completely unrealistic? You could also ask: how much would you be willing to spend right now to receive 1 billion in 46 years? Are you allowed to cash out earlier? Can your children inherit it? Can I borrow money to buy this guaranteed payoff?
- mewpmewp2 6y ago
  Okay let's just simplify. How would you value this company? What would be fair share price you would consider buying in assuming for example it has 100,000,000 shares? Either question works.
  - davidivadavid 6y ago
    I'm not sure if you're quizzing people or asking for a way to value a company like Tesla. In which case I would recommend Aswath Damodaran's blog, where he's done that a few times, so you can see his methodology. http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-revisiting-my-tesla.html http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-r... (in video form at the bottom if you prefer)
bob33212 6y ago
With a market cap of 50T the stock would return 2% dividend eventually. And banks can currently get loans from the US government and other funds for around 0.03%. So if you were a banker and you got a loan for 50T from the US government as long as interest rates remained low for the next 21 years you would have a company making 20B in profit and a cost of 15B servicing the debt. And the next year it would be 40B in profit and 15B costs. So the question you are asking is what are rates going to be for servicing debt over the next 20 years? If rates go up to 8% 50T is probably too high for the stock. The reason TSLA's stock is so low currently is because there is no guarantee that it will continue to grow at the same rate over the next 15 years.
- mewpmewp2 6y ago
  So then it becomes about understanding risk. Let's say we are able to determine that there is 10 percent chance that this company will succeed or 90 percent that it will fail completely, how would you then value the company right now? I guess my point here is to figure out how companies should be valued. I think to accurately value something you will need to estimate different most likely timelines and endings for a company and come back from there. I feel like anyone who does a blanket claim of TSLA or any other stock being overvalued has not done such calculations. Also I am not claiming Tesla is not overvalued, but just that you can't be this sure without doing those calculations. I am finding it so hard to find someone to have this discussion with.
  - bob33212 6y ago
    Yes, you're right. It is about risk. There are hundreds of things that could go wrong on Tesla's path to converting the world to Autonomous EV transportation. No one knows which if any of those things will go wrong over the next 5-10 years. I'm not a day trader, so for me, saying that Tesla is overvalued today is like saying that people who buy flood insurance are stupid because there is no rain the 10 day forecast. If TSLA was $100k/share today then yes it would be overvalued. Just like if someone was paying $100k/month for flood insurance on a 200k house in the desert that would be stupid. For my analysis Tesla has a decent chance at building a 25k profitable EV and 5-6 other models at scale and succeeding in Autonomy within 5 years. So I'm comfortable buying today at anything below $1200.

rapsey 6y ago

The real question is how popular the CEO is on twitter. Stocks are nothing but a popularity contest now.

WA 6y ago

From $10,000 to $1T would take almost 46 years. Guaranteed growth of 50% per year? I mean, what’s the point of this hypothetical question if it is completely unrealistic? You could also ask: how much would you be willing to spend right now to receive 1 billion in 46 years? Are you allowed to cash out earlier? Can your children inherit it? Can I borrow money to buy this guaranteed payoff?

mewpmewp2 6y ago
Okay let's just simplify. How would you value this company? What would be fair share price you would consider buying in assuming for example it has 100,000,000 shares? Either question works.
- davidivadavid 6y ago
  I'm not sure if you're quizzing people or asking for a way to value a company like Tesla. In which case I would recommend Aswath Damodaran's blog, where he's done that a few times, so you can see his methodology. http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-revisiting-my-tesla.html http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-r... (in video form at the bottom if you prefer)

bob33212 6y ago

With a market cap of 50T the stock would return 2% dividend eventually. And banks can currently get loans from the US government and other funds for around 0.03%. So if you were a banker and you got a loan for 50T from the US government as long as interest rates remained low for the next 21 years you would have a company making 20B in profit and a cost of 15B servicing the debt. And the next year it would be 40B in profit and 15B costs. So the question you are asking is what are rates going to be for servicing debt over the next 20 years? If rates go up to 8% 50T is probably too high for the stock. The reason TSLA's stock is so low currently is because there is no guarantee that it will continue to grow at the same rate over the next 15 years.

mewpmewp2 6y ago
So then it becomes about understanding risk. Let's say we are able to determine that there is 10 percent chance that this company will succeed or 90 percent that it will fail completely, how would you then value the company right now? I guess my point here is to figure out how companies should be valued. I think to accurately value something you will need to estimate different most likely timelines and endings for a company and come back from there. I feel like anyone who does a blanket claim of TSLA or any other stock being overvalued has not done such calculations. Also I am not claiming Tesla is not overvalued, but just that you can't be this sure without doing those calculations. I am finding it so hard to find someone to have this discussion with.
- bob33212 6y ago
  Yes, you're right. It is about risk. There are hundreds of things that could go wrong on Tesla's path to converting the world to Autonomous EV transportation. No one knows which if any of those things will go wrong over the next 5-10 years. I'm not a day trader, so for me, saying that Tesla is overvalued today is like saying that people who buy flood insurance are stupid because there is no rain the 10 day forecast. If TSLA was $100k/share today then yes it would be overvalued. Just like if someone was paying $100k/month for flood insurance on a 200k house in the desert that would be stupid. For my analysis Tesla has a decent chance at building a 25k profitable EV and 5-6 other models at scale and succeeding in Autonomy within 5 years. So I'm comfortable buying today at anything below $1200.