> Setting a price target of $10 on a $200 stock "really is insane," the "Mad Money" host said. "How about $8? How about $12? Ten basically says, 'I want to get talked about. Let's talk about me.'"
> "If he had done $47 would we have talked about him? No, but 10. Ten is right in your face," Cramer said on "Squawk on the Street." "I question this piece of research."
If even Cramer is willing to call bullshit on this, it makes you wonder. Is there any duty of care in these analysis? Are they merely op-ed of another name? Or if they are supposed to mean something, what kind of repercussions should follow from this kind of malfeasance?
But most of all, remember the old adage, when there’s blood in the streets...
Tesla still has a non-zero risk of failing; what kind of "repercussion" do you believe there should be for pointing this out?
In my opinion, the right way to value Tesla is to figure out the NPV of Musk's autonomous network vision and multiply it by the chance of getting there.
It's not necessarily a bad investment, but it would be a crazy basket to put all your eggs in to. There's a reason the 2025 bonds are currently trading at a 9% yield...
If they are still solvent on bond payout day, they have made a tidy profit. If they are not, it doesn't matter!
It’s more complicated than this because it’s expected rate of return with some variance, and deploying additional side-lined cash doesn’t always achieve the same return as the previous dollars, etc. etc.
But it comes down to this; if the best thing a company has to do with its dollars is pay down debt, they are telling you that they couldn’t think of anything more reliably profitable or useful to do with the dollars than that.
A company that is cash flow positive and is looking for investment opportunities simply does not have bonds that yield 9%. Not in this millennium.
In any case, I don't think you really hit on the reason not to do this. If you park your working capital in your own bonds, they're going to take a haircut when times get even worse, which is exactly when you'd be liquidating more of them.
This could trivially turn in to an outright death spiral unless further funds can be raised from elsewhere. Probably not the bond market!
With his long history of bad calls, there's no reason to give any more credit than he deserves.
Does that mean he wouldn't be saying anything about it if it were 11 instead? That seems like just as subjective an assessment as the one he's currently making. A seemingly "random" looking number can be just as arbitrarily chosen as a neat looking one.
It wouldn't surprise me to know analysts like to slightly round up or down a valuation target to hit a neat number like 10. But that seems like human nature to me, not a lack of integrity or critical analysis. I don't think this is a very critical heuristic to use...
This applies more to the entire market or particular industries than it does to specific stocks. There are many stocks whose charts look "bloody" because they are bad businesses. Not all of them go on to make a miraculous recovery, many simply find themselves trading on the pink sheets.
What does $10/share represent? Why not $1 or $30? Genuinely curious about how this sort of calculation would be made and what the assumptions are.
I once did some consulting for a very well known person in the financial services industry, a recognized leader in the field. As part of that work I got to see his financial "models". They took the form of the most incredibly complicated Excel spreadsheets I have ever encountered. They were real monsters with hundreds of thousands of rows, dozens of workbooks.
Being a software engineer, I wrote some code to reverse-engineer them. I wrote some VB to dump all the formulas as text, and then wrote a parser and code analyzer. The result was a real eye-opener. 90% of the formulas were dead code that didn't actually play into the results at all. The rest was still a mess, but when I started combing through it I discovered that even the live code didn't really matter to the results because at the end there was a "fudge factor" that the guy just set according to his gut feel about the market, and this was the main thing that determined the final result.
I didn't last long in that job.
So yes, I'm probably being a bit harsh. There are probably analysts who actually know something, and MPF is actually not totally worthless. But "it's all BS" is a pretty good first-order approximation.
The issue is that the things you're trying to model are usually extremely complex and dynamic, in a way that's fundamentally unlike most sciences where the objects of analysis obey more or less immutable laws.
So it's less like trying to model where a kicked ball will land in a football game, and more like trying to model where the ball will be after 30 seconds of passing and running.
But Michael Burry wasn't doing that, and his models weren't wrong. He correctly saw that the characteristics of the mortgage contracts that were being put into MBSs invalidated the assumption of uncorrelated defaults that were being used in the banks' and ratings agencies' models.
If you think that’s true, the natural correlary is that all companies are just flipping coins.
I imagine the basic assumption is that if the market is tapped out, revenues will slow, plateau and then begin to fall before Tesla reaches sustained profitability. That means debts will begin to grow again.
Current book value is about $26 a share, of which about $12 is cash on hand. If debt remained constant but no new cash came in, book value goes to $14 at the moment of bankruptcy. Discounting for "bankruptcy really sucks for shareholders", $10 is a fairly defensible worst-case.
That's a dramatically over simplified explanation, though. Look up divided discount model (DDM) and discounted cash flows (DCF) for more info. There are other methods as well, but most rely on the same principals.
Some of those guys are going to have a Chapter 11 bankruptcy haircut. They'll probably all survive, but the investors, not so much. Tesla has to raise a lot of money over the next few months. When the dust settles, Tesla may be a Chinese company. Tencent is the latest big investor.
This is something people don’t understand about the trade deficit. Most people think the trade deficit means that China sends the US way more stuff than the US sends to China.
That is not true. Of course China doesn’t send stuff without asking for things in return. China sends stuff and then has the right to buy pieces of American companies and future cash flows of those companies (and government entities).
The US is getting a bunch of stuff and giving away little pieces of it’s future. This is just a visible example
If my hypothetical explanation is correct then the implicit goal of “fixing the deficit” ends up reading as ultimately somehow ensuring China has less money, and just that China has less money, when I think that the legitimate national security concerns around the trade deficit would be better addressed by some actual investment oversight.
But, again, maybe there’s something about the deficit entitling China to stakes in US companies that I’m not seeing.
"All black people are _____" is equally unacceptable.
I'm sure, and hope, that the US regulators will block that from happening.
Also I'm pretty sure CFIUS will block it anyway.
The $10 TP that's been published is pretty out of the ordinary and appears like it was published to grab the attention of his readers and the press. Research analysts commonly will publish a controversial analysis that can be supported by their work in order to get more investors on the phone, since that's where commissions are generated.
This could also potentially be the MS analyst sending a message to the company that they need to do more to address concerns around demand. This sort of research is typically read by investor relations, and the important pieces sent along to C-suite executives and the board.
The size of the electric car market = the size of the car market now.