Short-Term TSLA Price Movements - 2016

[Fallenone]

When it's still in the state of "guess", there's no right or wrong IMO. It is only after the event happened can we tell which "guess" was right and which was wrong. "Fair" represents the balance of all "guesses" for the future, in addition to the "facts" of the past.

I guess my question has to do with the concept of "fair". If you separate investors into the segments mentioned above, you can achieve some type of average valuation, but how does this valuation connote "fair" if a disproportionate number of investors are guessing wrong?

 

[Papafox]

When it's still in the state of "guess", there's no right or wrong IMO. It is only after the event happened can we tell which "guess" was right and which was wrong. "Fair" represents the balance of all "guesses" for the future, in addition to the "facts" of the past.

I'm okay with such an explanation, Fallenone, as long as one doesn't come to regard the word "fair" as meaning "accurate".

 

[jesselivenomore]

If you think the market price of TSLA is a fair evaluation of potential risk vs. reward, then why would you be long? Seems like this becomes just a roll-the-dice gamble if that's your position. Maybe I have misunderstood you.

Being fairly valued does not mean its 50/50 to go up or down. If it continues to achieve its goals the value of the company will still increase - for growth stocks some of that is "priced in" based on the amount of faith the market has in it, but much value is still gained by actually accomplishing it(and continuing to grow). Going long is a bet that they will do that, not a bet that they are "undervalued".

 

[Papafox]

Being fairly valued does not mean its 50/50 to go up or down. If it continues to achieve its goals the value of the company will still increase. Going long is a bet that they will do that, not a bet that they are "undervalued".

The stock trader's version of "undervalued" likely differs from what many of us would consider "undervalued". The point I'm trying to make is that even though the market has given a value of 179.50 to TSLA today, that valuation is not necessarily an accurate appraisal of risk vs. reward over a chosen time frame that you as an investor are working within.

Maybe I should be saying the market is "innaccurately valuing TSLA on the low side according to my perceptions of risk vs reward for my chosen time frame" instead of using the term "undervaluing", but to suggest that the market knows best and does a reasonable job of valuing a stock's potential is giving the market too much credit. It's a data point that a reasonable investor needs to consider, but it's not the best guess that can be made.

 

[stealthology]

Right, this is where we disagree. Initial reactions on a minute to hourly basis may be wrong, but on a daily or especially weekly time frame I believe the market will be pricing in the correct probabilities.

So the market is efficient? There are too many unknowns and variables with companies themselves and also with how smart money views a certain stock price. If you trusted the market back in 2013, it certainly didn't seem to price Tesla very accurately at $30-40/share.

 

[lango]

Being fairly valued does not mean its 50/50 to go up or down. If it continues to achieve its goals the value of the company will still increase - for growth stocks some of that is "priced in" based on the amount of faith the market has in it, but much value is still gained by actually accomplishing it(and continuing to grow). Going long is a bet that they will do that, not a bet that they are "undervalued".

Yeah, this is definitely one way (the right way?) to play growth stocks and it is also what I use. Trying to figure out the metrics that matters for the market and then assign probabilities to them, and not look at infinite DCF to decide to go long or short. For Tesla I think the key metrics are P/S and gross margin, not P/E or operating margin. For Amazon it is DCF and lately AWS, for Netflix it is user growth etc.

Growth stocks usually are not stationary with respect to market price and "grow into their valuation", they are rather continuing to raise in valuation until the growth rate disappoints, and then you can see a drop of 50% very quickly, often you have to time to sell before the market is complete with the reevaluation.

Tesla's forward P/S is now about 2.5, which is not high given their growth rate so that is one way to look at it to decide if it is overvalued or not. I don't think the market will assign a much lower P/S as long as they keep their growth rate in the 40-50% range.

 

[AlMc]

The stock trader's version of "undervalued" likely differs from what many of us would consider "undervalued". The point I'm trying to make is that even though the market has given a value of 179.50 to TSLA today, that valuation is not necessarily an accurate appraisal of risk vs. reward over a chosen time frame that you as an investor are working within.

Maybe I should be saying the market is "innaccurately valuing TSLA on the low side according to my perceptions of risk vs reward for my chosen time frame" instead of using the term "undervaluing", but to suggest that the market knows best and does a reasonable job of valuing a stock's potential is giving the market too much credit. It's a data point that a reasonable investor needs to consider, but it's not the best guess that can be made.

Yep. You and I consider the stock 'inaccurately valued' as being too low while through another person's frame of reference they think it is too high. So..You have longs and shorts. Uou and I think the risk reward is in our favor just as the shorts think it is there favor.

I do like the balance of discussion over this last day. There are smart longs and smart shorts and there are longs and shorts that are part of their respective herds. The smart longs and shorts both make money at different times. The herd mentality investors don't always lose, but are more prone to it.

 

[jhm]

Right, this is where we disagree. Initial reactions on a minute to hourly basis may be wrong, but on a daily or especially weekly time frame I believe the market will be pricing in the correct probabilities.



I get what you are saying. And I just don't see the market pricing in much bankruptcy risk at all. In fact at 4-5 times revenues and 21 times book, its valuation is the crux of most bear arguments. If there was any significant bankruptcy risk being priced it would be much much lower. Like under 50. Tesla is overvalued if you look at current financials, and undervalued if you assume the best case for future financials. Once you factor in the probabilities for your future financials to play out, it is back to being fairly valued.

And I'd agree that the market is probably pricing in higher bankruptcy risk for TSLA than GM/F, but then it is also pricing in much much higher potential reward for TSLA as well, which is why it is rewarded with its valuation. I think overall its fair.

Uh, the two statements in bold seem to contradict each other.

The problem with shorts is they alway bet against the efficient market hypothesis. If the market is correctly pricing the risk reward tradeoff, the short is taking the negative reward for at least as much risk. So if the market has it right, the short has it wrong. It is also a fallacy, to say that a market needs shorts to be efficient. Not true theoretically, and experimental studies of market bubbles show that the presence of shorts in a market does not reduce a bubble. So basically, an efficient market has no need to reward a short. On the other hand, longs are rewarded for absorbing risk and providing capital. Many shorts like to say they believe in efficient markets, but their short bets reveal a conceit that somehow they know better than the market. But let's be honest, we all think we know better than the market; otherwise we'd just toss our money into index funds and find better things to do with our time than trying to second guess the market.

 

[The Blue Owl]

Being fairly valued does not mean its 50/50 to go up or down.

But it should be a reflection of the expected value across the whole probability distribution, no? Meaning, if it's fairly priced, the expected loss/gain should be near zero. That's how I understand the efficient market hypothesis: all the available information is correctly processed, and the uncertainty attached to various outcomes is accurately estimated by the crowd. The price should only change when previously uncertain outcomes become reality with the passage of time, or when new, unexpected information hits the market.

The thing is, if the hypothesis were true all the time for every stock, why would you invest in a particular stock for the long term instead of buying an index fund? It would make sense to go big in one particular stock only if you believed that the market understanding, as averaged over the large number of financial professionals who make investment decisions, is wrong for that stock and you think the market will realize in the future what you already understand today.

 

[stealthology]

Hate to interrupt such a thought provoking discussion, but a new article..
Tesla Powerwall arrives in Germany Memodo receives large shipment and cites high demand | Electrek

Memodo just received a shipment of about 25 PowerWalls. They are the first distributor in Germany. CEO is quoted as saying: "No new product launch in recent years has generated a similar demand in the market.”

Hmm. I hope more PowerWalls are coming. And hopefully Sonnenbatterie doesn't catch on.

 

[Zhelko Dimic]

Must be a boring day with so much discussion about price as accurate representation of valuation.

My question is about this: http://stocknewsflow.com/1318605_000156459016013217_0001564590-16-013217
Is this about being able to issue another 2M shares, but they're not earmarked and assigned yet?

 

[mmccord]

People really need to forget about the shorts and just worry about how Tesla the company is doing. I hope most are investing based on objective reasoning rather than some vindictive crusade. Dreaming about how to trigger the next short squeeze is short term piker mentality. SCTY had a massive short squeeze after ITC extension. Guess what, now it is trading far below where it was originally. Here's a secret(not a secret), if TSLA does what it is suppose to do, or what it says it will do, the short interest will take care of itself. If TSLA continues to miss earnings estimates by $1.00, the shorts will never go away and ride it all the way down.

Think of it this way. If every single short covered on this recent decline - no more short squeeze in the cards, would TSLA ever reach 300 and above? If the answer is no, that no longs were ever going to be willing to pay that price, then even if it got there on a short squeeze it would have been temporary. And it would have fallen back once the shorts were done covering with no one left to support the price. So what good is that unless you are a piker and sell? However, if the answer is yes, then one way or another TSLA will get there eventually. With or without shorts covering. It is simple, in the long run the stock will be priced based on the value the company produces, not based on some enduring battle between good longs vs evil shorts. Please.

One more thing about short interest that I am not sure many are aware of - it is not some bullish sign. Yes, high short interest represents volatility and a potential for sharp short term squeezes. But in the long run, for the vast majority of cases, high short interest(>20%) is indicative of either something wrong with the company or high inherent risk. Indeed shorts are a more sophisticated breed of investor than the vast majority of retail longs, which is why most of the time they are right. TSLA is not unique in its high short interest and there are a bevy of examples in recent years. GMCR, DDD, NUS, GPRO, FIT, LL, WTW, GRPN, CHK, JCP and yes, SCTY. Just a few names everyone knows out of many more where the shorts have gotten it right. Even NFLX where the shorts were wrong, it had drawdowns of 80%+ before it was all said and done.

Hey! I'm short 300 shares of NFLX right now. :x

 

[Zhelko Dimic]

The thing is, if the hypothesis were true all the time for every stock, why would you invest in a particular stock for the long term instead of buying an index fund?

Events that didn't come to pass yet have uncertainty related to them, uncertainty that shaves chunk of potential price.
Company trying to do big and hairy stuff gets to recoup larger stock prices increases when it succeeds (removes uncertainty), than most companies with more modest goals.

Ideological bulls trust goals will be achieved with such certainty, that they under-price risk compare to average/efficient investor, and hence see stock as underpriced.
For example, I'm convinced TSLA will be $500-$5000 in 10 years. Maybe a touch more...

 

[ggies07]

In the 10-K released today:

"As of December 31, 2015, the following two performance milestones were considered probable of achievement:

·

Successful completion of the Model 3 Alpha Prototype; and

·

Successful completion of the Model 3 Beta Prototype

"

Compared to last year's 10-K, Model 3 Beta Prototype is added to the "considered probable of achievement".

Alright! So it won't just be a picture at the reveal.....

 

[Fallenone]

On the other hand, alpha is not marked as achieved, so the bears still have a way to spin this if they want. But I don't think there will be just pictures. That is one of the stupidest rumor in a long long time.

Alright! So it won't just be a picture at the reveal.....

 

[The Blue Owl]

Ideological bulls trust goals will be achieved with such certainty, that they under-price risk compare to average/efficient investor, and hence see stock as underpriced.
For example, I'm convinced TSLA will be $500-$5000 in 10 years. Maybe a touch more...

Right, but you don't need to be an "ideological" bull, you can be a moderate bull (or a rhino who runs in the family, whatever that means) who thinks the likelihood of success is higher than what the current price reflects.

 

[techmaven]

10-K has been posted. I'm looking through it, seems to have some interesting nuggets.

 

[Papafox]

10-K has been posted. I'm looking through it, seems to have some interesting nuggets.

So much for the discussion of market theory. Techmaven has bit into something much juicier ; )

 

[Causalien]

That short interest is significant now in my opinion. But somehow no one reporting high interest from lending out their shares. In any case, we are bumping into the downtrend started at $240 so this will take a few days.

 

[Zhelko Dimic]

Must be a boring day with so much discussion about price as accurate representation of valuation.

My question is about this: http://stocknewsflow.com/1318605_000156459016013217_0001564590-16-013217
Is this about being able to issue another 2M shares, but they're not earmarked and assigned yet?

Trying again: anyone understands this about 2M shares?

http://stocknewsflow.com/1318605_000156459016013217_0001564590-16-013217