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September 2013

Tesla: What Would Peter Lynch Say?

September 30, 2013 by EconMatters   Comments (0)

By EconMatters

Our post last night highlighting our view and what BofA thinks of Tesla (Nasdaq: TSLA) seems to have stirred up a fire storm of reader comments at Seeking Alpha (in case you missed our post, catch it here).  Then we thought it'd be interesting to see how Tesla would be valued via this Peter Lynch Chart below from Guru Focus.  

Peter Lynch was the fund manager for the Magellan Fund of Fidelity Investments from 1977 to 1990. Under his management, Magellan's asset went from $18 million in 1977 to $14 billion in 1990 averaging a 29.2% annual return.  Today, he remains one of the legendary stock investors of the world.

In his book, "One Up on Wall Street", Lynch detailed some techniques he used to find winning stocks:

“A quick way to tell if a stock is overpriced is to compare the price line to the earnings line. If you bought familiar growth companies.....when the stock price fell well below the earnings line, and sold them when the stock price rose dramatically above it, the changes are you’d do pretty well.”   

Peter Lynch Fair Value is calculated based on Lynch’s famous rule of thumb: He is willing to buy a growth company at a P/E multiple that is equal to its growth rate.  Since Tesla's "beat expectation" earnings are still negative, the Peter Lynch Fair Value thus is a whopping -$31.5.

Ok, 'nuff said, no wonder institution investors are cashing out.    


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Tesla: Where Retail Investors Rushing in and Nest Eggs Cracking

September 29, 2013 by EconMatters   Comments (0)

By EconMatters

Every year there seems to be a few momentum stocks defying logic, reality while bleeding all shorts getting in the way.  This year, Tesla Motor (Nasdaq: TSLA) is one such stock which hit $188.64 on Friday, Sept. 26.


Chart Source: Yahoo Finance, Sept. 28,2013

We are talking about a $35ish stock just on Jan. 2, 2013, and the company only reported its FIRST EVER profitable quarter in May.  Goldman Sachs (GS) did do a reality check on Tesla's margin in July, and the stock did go down by $18.21 in one day on July 15.  However, a forgiving market with crazy liquidity (thanks to Fed's infinite QE),  investors just blew GS off and the stock's never looked back.  

Now the latest Tesla warning came from BofA Merrill Lynch dated Sept. 23 -- Smart-money big boys are getting out of Tesla, and guess who are the buyers...Retail Investors!

"Institutional ownership of Tesla stock has faded throughout 2013, from approximately 84% of shares held in January to about 66% today. As a result, it now appears that retail investors are playing an increasing role in driving the stock price higher and could be at risk when a correction, which we believe is long overdue, ultimately occurs."

More importantly, BofA Merrill Lynch thinks Tesla price objective (PO) should be at $45!  (That's 76% lower than the closing price on Friday.)

"We continue to view Tesla shares as vastly overvalued and maintain our $45 PO, which is based on a 2015e EV/EBITDA multiple of about 12X (currently 12.7X).  We note that our valuation multiple is relatively consistent with the simple average of 2015 EV/EBITDA multiples for a group of 35 growth oriented tech companies, based on consensus estimates."    

Chart Source: BofA, Bloomberg

The reason for such pessimistic view on Tesla going against the market herd?  BofA noted:

We estimate that Tesla’s current share price implies approximately 628K vehicle sales in 2020 (versus an estimated 21K in 2013).....Generating luxury margins on a mass market vehicle is likely to prove incredibly challenging, and represents another major hurdle to the bull case, in our view.

In other words, the current valuation might remotely be reasonable if Tesla were the only game in town without the competition from GM, Toyota and BMWs.        

Fundamentally, I can see why even a typical bull like GS would have concern -- TTM financial ratios related to profitability and margins of Tesla are ALL NEGATIVE or meaningless since 2008! (See Screen Shot from S&P Capital IQ)

Source: S&P Capital IQ

Some analysts argued that Tesla requires an unconventional approach to valuation due to Tesla's special 'advantages'.  However, I think the current price point of Tesla stock is unlikely to be justified by any reasonable and logical model, however unconventional it needs to be.  And it looks like a lot of the institution smart money investors agreed and have already cashed out judging from the BofA analysis.

Approaching it from a common sense point of view, Tesla is already exhibiting signs of a bubble when you see quotes like this:

“It’s what Marty McFly might have brought back in place of his DeLorean in Back to the Future.”  ~ Consumer Reports, May 2013

And when Tesla’s chief designer, Franz von Holzhausen, pulled out the Apple and 'iPhone Moment' card when he tried to explain why the car has a touchscreen:

“It’s like the leap of faith Apple (AAPL) took with the iPhone.  The screen is the hero. We are in the midst of that transition toward a new way of thinking. For me, it’s that iPhone moment.” 

My take is that it seems a pretty smooth move implying Tesla, essentially an auto maker in the manufacturing sector, is a 'peer' of Apple, an international icon tech company.  

The Christian Science Monitor (CSM) just published an interesting article questioning how Tesla could be worth almost half (46%) of General Motors in terms of market cap.  This caught my eyes because typically CSM is not a site where you find articles talking about stock valuation.  As such, CSM did not cite the financial lingos such as forward PE, etc, but rather based it purely on the fact that

"GM has built over 450 million cars in its 105 years while Tesla has made about 25,000 over 10 years."  

A lot of times, the most basic question is usually the most important one that retail investors should ask before getting into Tesla.

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Smart City and Energy Harvesting, An Infographic

September 28, 2013 by EconMatters   Comments (0)

By EconMatters Staff

As part of the global sustainability initiative, countries (and cities) around the world are shifting into high gear working towards becoming part of the "smart cities".  For example, on 10 July 2012, the European Commission launched the Smart Cities and Communities European Innovation Partnership.  The partnership proposes to pool resources to support the demonstration of energy, transport and information and communication technologies in urban areas.

In Asia, Japan is also taking steps to make its cities smarter with research taking place in Yokohama on demand response for large commercial buildings, and other energy harvesting technologies.

In the U.S., San Diego is taking a major step in a similar program.  According to Energy Collective, the city is focusing its efforts on educating consumers on how to monitor and manage their energy usage, thus helping California to meet its renewable energy goal of 33% by 2020, and automating the electric grid with two-way communication.

The same article from Energy Collective also cited a report by Pike Research that the number of people living in cities will grow from 3.6 billion to 6.3 billion by 2050. With such a change, major cities must start developing ways to improve efficiency and profitability in all areas from energy consumption to transportation.

The Pike report also predicts that the smart city technology market will increase from $6.1 billion annually to $20.2 billion by 2020.  This is certainly something interesting and exciting to look forward to in the future, and the infographic below gives a sneak peek of the future smart city.

Welcome To Energy Harvesting
Graphic Source: Sagentia

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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