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Jonathan Hewitt
Active Member
We were at the 7% percentile almost a year ago at $210, now we are at the 7% percentile once again, albeit at $270. The market works in mysterious ways
Glad I loaded up under $200 when we were under the 0% percentile...So if the market still doesn't wake up, then one year from now the 7% percentile should give us $360. With that said, with Model 3 around the corner it could wake up any day and catapult us into higher percentiles. If we dip after the ER I can't imagine it being long lived or deep unless there are serious problems we don't know about.
Oh, and some have questioned whether this model should even be used. Considering Ron Baron now has an estimated market cap of TSLA of over 1 Trillion I think that help justifies what Elon mentioned in the past as possible for TSLA which therefore increases the validity of this model.
Hey, I'm okay. Sorry I've lost track of this thread. Perhaps a refresh is in order.
That's uncanny that we're still at the 7% percentile. If the LTPT is correct, this could simply mean that the market just want a 33.5% discount on this stock. I'll see if I can refresh this in the coming days. I think I may want to use a longer training date range because this stock seems to cycle quite alot before moving into a new price range. It could be that 33.5% discount is closer to the median now. We'll see.We were at the 7% percentile almost a year ago at $210, now we are at the 7% percentile once again, albeit at $270. The market works in mysterious ways
So if the market still doesn't wake up, then one year from now the 7% percentile should give us $360. With that said, with Model 3 around the corner it could wake up any day and catapult us into higher percentiles. If we dip after the ER I can't imagine it being long lived or deep unless there are serious problems we don't know about.
Oh, and some have questioned whether this model should even be used. Considering Ron Baron now has an estimated market cap of TSLA of over 1 Trillion I think that help justifies what Elon mentioned in the past as possible for TSLA which therefore increases the validity of this model.
Does anyone have ideas about adjusting the LTPT? Perhaps after annual earnings come out, we can check the revenue for 50% growth and reset the base revenue assumption.
Jonathan Hewitt
Active Member
Another thing to consider is I think the original assumption was AAPL Mcap/~$700 Billion. The new assumption should probably be based on 1 Trillion, which is the new number Elon mentioned after the SCTY acquisition. The time frames might be different, too, but I don't remember the dates associated with each estimate.
Here's a refresh. I've kept the same old LTPT of $3590.45, but now the training period is over four years. This should give us much wider exposure to how the stock cycles.
Percentile Implied Discount 2017-02-21 2018-02-21 2019-02-21 2020-02-21
. .. 30% . . . 33.5% . . . $277 . . . $370 . . . $494 . . . $660
. . . 0% . . . 43.6% . . . $145 . . . $209 . . . $300 . . . $431
. . . 5% . . . 39.0% . . . $194 . . . $269 . . . $374 . . . $520
. .. 25% . . . 34.0% . . . $268 . . . $359 . . . $482 . . . $645
. .. 50% . . . 30.6% . . . $336 . . . $439 . . . $573 . . . $749
. .. 75% . . . 28.3% . . . $395 . . . $507 . . . $650 . . . $834
. .. 95% . . . 26.3% . . . $452 . . . $571 . . . $722 . . . $912
. . 100% . . . 25.0% . . . $496 . . . $620 . . . $776 . . . $970
Notice that implied discount is still at 33.5%, but with this wider training range the percentile is now 30%. Personally, I'd be happy if the implied discount stayed at this current level for many more years. It's pretty cool to think that the stock to be approaching $500 in two years. Regardless, we've got a lot of headroom to rise as high as $395 in the short run. By headroom I mean, if the price went that high I would not be too worried about the price getting too far ahead of the value of the stock. More realistically, I think we'll say closer to the trajectory along the 33.5% discount. I think that bulls have learned not to get hyped up.
Percentile Implied Discount 2017-02-21 2018-02-21 2019-02-21 2020-02-21
. .. 30% . . . 33.5% . . . $277 . . . $370 . . . $494 . . . $660
. . . 0% . . . 43.6% . . . $145 . . . $209 . . . $300 . . . $431
. . . 5% . . . 39.0% . . . $194 . . . $269 . . . $374 . . . $520
. .. 25% . . . 34.0% . . . $268 . . . $359 . . . $482 . . . $645
. .. 50% . . . 30.6% . . . $336 . . . $439 . . . $573 . . . $749
. .. 75% . . . 28.3% . . . $395 . . . $507 . . . $650 . . . $834
. .. 95% . . . 26.3% . . . $452 . . . $571 . . . $722 . . . $912
. . 100% . . . 25.0% . . . $496 . . . $620 . . . $776 . . . $970
Notice that implied discount is still at 33.5%, but with this wider training range the percentile is now 30%. Personally, I'd be happy if the implied discount stayed at this current level for many more years. It's pretty cool to think that the stock to be approaching $500 in two years. Regardless, we've got a lot of headroom to rise as high as $395 in the short run. By headroom I mean, if the price went that high I would not be too worried about the price getting too far ahead of the value of the stock. More realistically, I think we'll say closer to the trajectory along the 33.5% discount. I think that bulls have learned not to get hyped up.
Thanks. You could base it on market cap, but you'd still need to divide it by the number of shares expected in the future to make it relevant to the stock price. Along these lines, acquisition of SolarCity increased both market cap and number of shares.
After the annual report, let's discuss how to revise the LTPT. Perhaps we can base 2017 on revenue guidance.
Paracelsus
Active Member
Your posts have been enjoyable and informative to follow, whether it is on this thread or others, jhm. It has been fun to watch the 'training period' you discussed bring more clarity to your forecasts. Thank you for your efforts! Looking forward it seems we are beginning to see some real convergence of the bfpt with other analysis on these boards............i.e. your 2018 forecasts and the 2018 forecast of 400 to 400 that AustinEV posted recently on the 'some views on current price action' board (post 64). Is it your opinion that the percentile ranges are forming upper and lower resistance levels at this point? Can you please post your data as a graph through 2025 as jrod0802 had in much earlier posts? Very much appreciated!
2017 Update to Long-Term Price Target
Now that we have year-end results for 2016, we should consider revising through LTPT.
Our current LTPT of $3590.45 was based on the following assumptions:
Revenue $9M in 2016
Revenue Growth 50% through 2025
Profit Margin 10% in 2025
P/E Ratio 20 in 2025
Share growth 4% annually
These assumptions lead to $346B revenue $691B market cap, and about 193M shares in 2025. That's how we got to $3590.45/share.
We can now check some of these assumptions.
Revenue was $7B on 2016, not $9B. There has been some slippage here in expectations. So I'd like to assume $7B in 2016 going forward.
Revenue growth 2016 over prior year was 73%. This compares favorably with the 50% assumed rate. So I'd like to keep the 50% growth rate assumption out to 2027
I will also like to keep the 10% profit margin and 20 P/E assumptions out to 2027.
Finally, the average number of shares in 2016 was 144.212 million, up 12.5% from prior year. Clearly our 4% share growth assumption is not adequate. Tesla is using alot of capital for growth and compensation. I'd love to dismiss the potential for dilution, but until Tesla is generating massive free cash flow, I think we need to prepare for share growth over 10% per year. In deed, the market may have been watching this dilution and discounted accordingly. Therefore, I would like to make the more conservative assumption that shares will grow by 12.5% annually through 2027.
So using these new assumptions we have $269B revenue, $538B market cap, and 416 million shares for a share price of $1292.93 in 2025. This, of course, is a bit of a let down, but there is much more conservatism built into it.
I'd like to make one other change. I'd like to set the LTPT out further into the future, specifically 2027 so it is a full decade ahead of us. The nature of this BFPT methodology is that all targets converge to a single value, the LTPT. So the closer you get, the more contracted the distribution of targets become. So the LTPT needs to be far enough out in the future that you can get a wide spectrum of targets in the immediate years.
So in 2027, our new assumptions lead to $605B revenue, $1,211B market cap, and 527M shares for a share price of $2298.54 in 2027.
So before I run the numbers on BFPT, I'd like to get feedback on this new LTPT of $2300 for 2027. Is it too conservative? Too optimistic?
Each year we can go through this exercise. Perhaps revenue growth will surprise us, or share growth will slow. So all these things can be adjusted as we reformulate a ten-year view of the company.
The good news is that we are on track to becoming a $1.2T company by 2027.
So please give feedback. Thanks.
Now that we have year-end results for 2016, we should consider revising through LTPT.
Our current LTPT of $3590.45 was based on the following assumptions:
Revenue $9M in 2016
Revenue Growth 50% through 2025
Profit Margin 10% in 2025
P/E Ratio 20 in 2025
Share growth 4% annually
These assumptions lead to $346B revenue $691B market cap, and about 193M shares in 2025. That's how we got to $3590.45/share.
We can now check some of these assumptions.
Revenue was $7B on 2016, not $9B. There has been some slippage here in expectations. So I'd like to assume $7B in 2016 going forward.
Revenue growth 2016 over prior year was 73%. This compares favorably with the 50% assumed rate. So I'd like to keep the 50% growth rate assumption out to 2027
I will also like to keep the 10% profit margin and 20 P/E assumptions out to 2027.
Finally, the average number of shares in 2016 was 144.212 million, up 12.5% from prior year. Clearly our 4% share growth assumption is not adequate. Tesla is using alot of capital for growth and compensation. I'd love to dismiss the potential for dilution, but until Tesla is generating massive free cash flow, I think we need to prepare for share growth over 10% per year. In deed, the market may have been watching this dilution and discounted accordingly. Therefore, I would like to make the more conservative assumption that shares will grow by 12.5% annually through 2027.
So using these new assumptions we have $269B revenue, $538B market cap, and 416 million shares for a share price of $1292.93 in 2025. This, of course, is a bit of a let down, but there is much more conservatism built into it.
I'd like to make one other change. I'd like to set the LTPT out further into the future, specifically 2027 so it is a full decade ahead of us. The nature of this BFPT methodology is that all targets converge to a single value, the LTPT. So the closer you get, the more contracted the distribution of targets become. So the LTPT needs to be far enough out in the future that you can get a wide spectrum of targets in the immediate years.
So in 2027, our new assumptions lead to $605B revenue, $1,211B market cap, and 527M shares for a share price of $2298.54 in 2027.
So before I run the numbers on BFPT, I'd like to get feedback on this new LTPT of $2300 for 2027. Is it too conservative? Too optimistic?
Each year we can go through this exercise. Perhaps revenue growth will surprise us, or share growth will slow. So all these things can be adjusted as we reformulate a ten-year view of the company.
The good news is that we are on track to becoming a $1.2T company by 2027.
So please give feedback. Thanks.
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Jonathan Hewitt
Active Member
I like going out to 2027. I think the revenue growth is fair, it will be much higher some years and lower for others. The P/E of 20 for 2027 is probably realistic because it will be AAPL sized and they have a 16 P/E.
I think the biggest potential number for contention is probably the share dilution. Did your dilution number include the SCTY dilution? If so, I don't think they are going to acquire a SCTY every year. On the other hand, they will probably do some dilutions to get Gigafactory 3, 4, and 5 going but from 2020 on I would expect minimal dilution. We should have enough profits from Model 3 in 2020 and later that the only dilution needed should be for employee compensation. So maybe we could model 12.5% dilution until 2020 and go back to 5% after that? I think that will make a big difference.
If you want to model a full 12.5% dilution all the way to 2027 then I think that means they are still growing like crazy at that point and deserve a 40 P/E in 2027 or will average more than 50% revenue growth but I might be too optimistic on this point. The way I see it is a 12.5% dilution in 2027 of a marketcap of $1.2 trillion is $150 billion. That number seems staggering to me. I'm interested to see what others think.
By the way if we assume 10% share growth, that lead to $2943.14, 8% to $3601.38, and 6% to 4423.50. So maybe 12.5% for the next 10 years is a bit too steep. Certainly once Tesla is free cash flow positive, it should be much lower than that. Thoughts?
Thanks. That's really helpful.
Shares grow 12.5% for 4 years, then 5% for 7 years, that is a CAGR of 7.67%. So maybe we can call it even at about 8%.
It is useful to think about how the market would look at a $1T company. Yeah, things like P/E could easily be impacted. Of course, we know that grow rates impact P/E. So if Tesla is still growing revenue at over 30% annually in 2027, it should command high P/E. How fast is Apple growing at this point? It may be good to gather a little dataset of super high market cap companies and look at cap, P/E and revenue growth.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
I love your concept here, and the methodology. I agree the adjustments as a result from revenue growth and dilution to the downside (I agree Tesla will raise capital through, partly, issuing shares in the future, likely several times before 2027). One big "known unknown" (credit goes to Rumsfeld) is if Tesla will sprout into new market segments in the next 10 years. Just consider thus far: first it was cars, then batteries/storage: TE, then they gulped up SCTY (mostly a solar financing company but also an installer, solar panel manufacturer and not too far in the future we'll see how solar roof tiles play out). Things we definitely know are coming longer term: The Tesla Network (autonomous ride sharing). Things that may become big drivers of revenue in the future: autonomous driving software and hardware sales to other car makers? Tesla/SpaceX collaborations such as worldwide high speed wireless Internet through a dense network of low orbit satellites (potentially enormous market value as a first mover)? Electric airplanes?
So the optimist in me says that considering Tesla's speed of innovation in the last few years and interpolating it in to the future your LPBFPT is very conservative. On the call yesterday Elon again talked about those exponential growth S-curves and how it can be difficult to appreciate and recognize that kind of growth in early stages.
One more constructive piece of feedback: Love your avatar! Where did you get the idea?
(PS. Desmond Hume was my favorite Lost character)
adiggs
Well-Known Member
I think the share bump due to Solar City acquisition makes for a reasonably one-time event, that should not be incorporated as the new annual run rate. Any idea what the dilution would have been for this previous year if we excluded the Solar City acquisition?
And how does the scale of the dilution due to Solar City compare to previous years with their secondaries / capital raises? As you just noted, the LTPT is quite sensitive to the dilution assumption, and we don't need anything like 10 years of growth for the annually raised capital to start looking ridiculous (though I have to say - if the company can deploy 10's of billions in annual capital, over and above the annual cash flow, that's just astounding and nearly unbelievable growth).
My gut is telling me something closer to 10% for a few years, and then 4 or 5% for the remainder of the period. And maybe just closer to the original annual dilution with this year's reset to the noticeably larger actual.
One thing about this assumption that becomes exceptionally conservative is that the day will come when one of the uses for the free cash flow is to be buying back shares for the purpose of stopping dilution. I don't know when that day comes, but at some point, Tesla's free cash will cover all investment and leave enough left over to buy shares from the market to offset shares issued to employees. I expect this anti-dilution use of cash to start happening well in advance of dividends (and all of this to be 5+ years away, but possibly within the 10 year LTPT window).
I prefer keeping a lower rate of dilution assumed throughout the window, but realize that this change to the good for us is also coming.
And how does the scale of the dilution due to Solar City compare to previous years with their secondaries / capital raises? As you just noted, the LTPT is quite sensitive to the dilution assumption, and we don't need anything like 10 years of growth for the annually raised capital to start looking ridiculous (though I have to say - if the company can deploy 10's of billions in annual capital, over and above the annual cash flow, that's just astounding and nearly unbelievable growth
).My gut is telling me something closer to 10% for a few years, and then 4 or 5% for the remainder of the period. And maybe just closer to the original annual dilution with this year's reset to the noticeably larger actual.
One thing about this assumption that becomes exceptionally conservative is that the day will come when one of the uses for the free cash flow is to be buying back shares for the purpose of stopping dilution. I don't know when that day comes, but at some point, Tesla's free cash will cover all investment and leave enough left over to buy shares from the market to offset shares issued to employees. I expect this anti-dilution use of cash to start happening well in advance of dividends (and all of this to be 5+ years away, but possibly within the 10 year LTPT window).
I prefer keeping a lower rate of dilution assumed throughout the window, but realize that this change to the good for us is also coming.
I had the same reaction on dilution as JH and like his suggestion. Another way to look at this is that Tesla revenue grew roughly 70% in 2016 (leaving aside SCTY contribution). And if the 1M vehicle in 2020 plus TE growing twice as fast as automotive targets are achieved (this is the "Blind Faith" thread
), then we are looking at 70+% revenue growth from 2016 through 2020, even without counting all of the other revenue components listed by @Johan. So even without the SCTY merger, higher dilution that might occur from 2016-2020 is to support much higher than 50% revenue growth. In other words, if we assume that revenue growth ends up an average of 50% over the 10 year period, less capital should be needed after 2020 when the growth rate drops closer to 50% because more of the growth can be funded from cash flow.Also, since this is the "Blind Faith Price Target" thread that I understood originally started using Elon's $700B market cap target, it would be great if we could find a way to stay true to the original intent and use $1T figure Elon threw out last year for the combined TSLA and SCTY value. The trick as was pointed out above is to pick a date. Since there was about a year and a half between his two statements (Feb. 2015 and June 2016), one possibility would be to move the date out by roughly the same amount and use your 2027 date (would be "rounding up" a bit). 2026 also might work (10 years from Elon's $1T prediction). Anyway, food for thought. Be interested to see what you come up with!
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Let's try using Musk's $1T number, the year 2027, and pick some dilution level. I think 10% is a good annual dilution estimate based on employee compensation (which is a slow and steady drip) combined with other occasional deals.
Agree with most of above:
The growth P/E is too low for the 12.5% dilution coupled with assumed profit margin use over those years.
This is especially true because Tesla is attacking capital intensive industries/markets on a broad but vertically integrated strategic path. This not only builds long term value highly resistant to competitive entry, but has near limitless growth potential.
Apple for example is decidly not this; Fast scaling, low capital per profit $, etc. They purposely built cash as a barrier of competitive entry to strategically address this. Allows them to look longer term and act like a Tesla in strategic thinking. For example, they currently garner 90%+ of all profits in their 'growth' market having accomplished their disruption. Their P/E is low due to uncertain ability to attain more- but supported by 30% of their CapValue being cash
There's going to be a time when it will become apparent and TSLA will be rewarded (via P/E) for exapanding through Cap spending (ala Amazon with near unlimited market availablilty).
The growth P/E is too low for the 12.5% dilution coupled with assumed profit margin use over those years.
This is especially true because Tesla is attacking capital intensive industries/markets on a broad but vertically integrated strategic path. This not only builds long term value highly resistant to competitive entry, but has near limitless growth potential.
Apple for example is decidly not this; Fast scaling, low capital per profit $, etc. They purposely built cash as a barrier of competitive entry to strategically address this. Allows them to look longer term and act like a Tesla in strategic thinking. For example, they currently garner 90%+ of all profits in their 'growth' market having accomplished their disruption. Their P/E is low due to uncertain ability to attain more- but supported by 30% of their CapValue being cash
There's going to be a time when it will become apparent and TSLA will be rewarded (via P/E) for exapanding through Cap spending (ala Amazon with near unlimited market availablilty).
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Ah, yes, dilution should be related to revenue growth. You raise capital when you have a higher growth opportunity to chase. That was definitely a theme in the CC.I had the same reaction on dilution as JH and like his suggestion. Another way to look at this is that Tesla revenue grew roughly 70% in 2016 (leaving aside SCTY contribution). And if the 1M vehicle in 2020 plus TE growing twice as fast as automotive targets are achieved (this is the "Blind Faith" thread
Also, since this is the "Blind Faith Price Target" thread that I understood originally started using Elon's $700B market cap target, it would be great if we could find a way to stay true to the original intent and use $1T figure Elon threw out last year for the combined TSLA and SCTY value. The trick as was pointed out above is to pick a date. Since there was about a year and a half between his two statements (Feb. 2015 and June 2016), one possibility would be to move the date out by roughly the same amount and use your 2027 date (would be "rounding up" a bit). 2026 also might work (10 years from Elon's $1T prediction). Anyway, food for thought. Be interested to see what you come up with!
So our old assumption of 50% rev growth and 4% dilution implies 44.2% (= 1.50/1.04 - 1) growth in revenue per share. So last year 73% rev growth and 12.5% dilution nets out 53.8% growth in revenue per share. So that is not a bad deal at all. Indeed, this gives us a useful way to look at dilution. As long as revenue per share grows more than say 50%, then there is no loss of value due to dilution. Or put another way a capital raise that accelerates RPS above 50% likely adds shareholder value.
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