Blind Faith Price Targets

[ValueAnalyst]

The current price of $362 is near median discount. Looking forward 12 months with have median BFPT in range of $435 and $485. My sense is that anything below $350 is a good price to accumulate. It is not yet time to buy above $400. Patience, that will come next year.

Keep the faith!

LTPT $3600, dilution 8%

Percentile    Discount    2017-08-15    2017-12-31    2018-08-15    2018-12-31    2019-12-31    2020-12-31    2022-12-31    2025-12-31
55.2%    24.77%     $362      $393      $451      $491      $612      $765      $1,190      $2,313
0%    31.10%     $216      $240      $284      $314      $412      $541      $929      $2,095
5%    29.48%     $246      $272      $319      $352      $455      $590      $989      $2,148
25%    27.11%     $298      $327      $379      $415      $528      $671      $1,085      $2,229
50%    25.27%     $347      $378      $435      $474      $593      $744      $1,167      $2,295
75%    23.58%     $400      $433      $494      $535      $661      $818      $1,249      $2,358
95%    22.05%     $455      $490      $555      $599      $730      $892      $1,329      $2,418
100%    20.92%     $501      $538      $606      $651      $787      $952      $1,392      $2,463

LTPT $5450, dilution 4%

Percentile    Discount    2017-08-15    2017-12-31    2018-08-15    2018-12-31    2019-12-31    2020-12-31    2022-12-31    2025-12-31
44.5%    29.86%     $362      $399      $470      $519      $673      $875      $1,476      $3,235
0%    35.93%     $225      $253      $306      $344      $467      $635      $1,174      $2,952
5%    34.32%     $255      $285      $342      $383      $514      $691      $1,246      $3,023
25%    31.79%     $310      $345      $409      $454      $598      $789      $1,371      $3,140
50%    29.45%     $374      $412      $484      $534      $691      $895      $1,500      $3,255
75%    27.51%     $437      $479      $558      $611      $779      $995      $1,617      $3,355
95%    25.87%     $500      $546      $630      $687      $865      $1,089      $1,725      $3,443
100%    24.75%     $549      $597      $685      $745      $929      $1,159      $1,804      $3,505

If it's not a good time to buy above $400, do you sell at $401? Do you hold? Do you sell if SP gets to $600, the 100 percentile price at year-end?

 

[jhm]

If it's not a good time to buy above $400, do you sell at $401? Do you hold? Do you sell if SP gets to $600, the 100 percentile price at year-end?

What I mean is don't wait to buy it a $400. The price is much lower right now. If the price were to rise above $400 this month, I'd just wait for the price to come back down before accumulating more.

The problem with the price going above $400 is that it is fragile. Sellers will easily knock the price back down as we saw when it breached $380 in June. Anyone who bought near $380 could have done much better waiting just a few weeks later when it fell to $320. You'll remember that before the price hit $370, I was saying things like don't wait to buy above $370.

Of course, there is always that scenario where the price breaches $400 and never comes back to anything below $400 again. That's a nice fantasy, and if you've already accumulated all the shares you want at below $400, you can simply enjoy that fantasy, no regrets. But realistically, this is a very volatile stock. After we've seen $400, odds are very high well see prices below $360 in very little time.

So the basic way I look at these price ranges is that there is a price below which I will want to accumulate, and there is a price above which I definitely want to hold off on buying. Between those prices, there is an opportunity to buy if there is some compelling situation arising. There probably is a very high price at which I will sell. I don't know where that is. Basically I am buy and hold. So the key question is when is the market giving me a really good discount to buy.

 

[ValueAnalyst]

What I mean is don't wait to buy it a $400. The price is much lower right now. If the price were to rise above $400 this month, I'd just wait for the price to come back down before accumulating more.

The problem with the price going above $400 is that it is fragile. Sellers will easily knock the price back down as we saw when it breached $380 in June. Anyone who bought near $380 could have done much better waiting just a few weeks later when it fell to $320. You'll remember that before the price hit $370, I was saying things like don't wait to buy above $370.

Of course, there is always that scenario where the price breaches $400 and never comes back to anything below $400 again. That's a nice fantasy, and if you've already accumulated all the shares you want at below $400, you can simply enjoy that fantasy, no regrets. But realistically, this is a very volatile stock. After we've seen $400, odds are very high well see prices below $360 in very little time.

So the basic way I look at these price ranges is that there is a price below which I will want to accumulate, and there is a price above which I definitely want to hold off on buying. Between those prices, there is an opportunity to buy if there is some compelling situation arising. There probably is a very high price at which I will sell. I don't know where that is. Basically I am buy and hold. So the key question is when is the market giving me a really good discount to buy.

How about we bet that if it goes over $400, then we'll never see $360? I think your dilution assumption is really throwing off the results. I would take a deep dive into equity plan mechanics and actually calculate what the dilution will be without any more equity secondaries.

 

[ValueAnalyst]

Let's see if we can model earnings as a function of revenue, revenue growth, and recent earnings. Now if we have a compelling basis for modeling near term earnings, that can be utilized. What we are after is a smooth transition to long term profitability out past current visibility.

So we need to add some notation to what we developed in a previous post.

E(t) is earnings in year t
h(t) = R(t+1)/R(t)-1, forward revenue growth
p(t) = E(t)/R(t), net income rate

We will start with
E(2016) = $675M
R(2016) = $7.00B, R(2017) = $11.07B
h(2016) = 58.12%
p(2016) = -9.64%

And we will assume long term
h(2100) = g = 3%
p(2100) = 10%

We already have a method for generating the revenue curve, R. So now the question is how to smoothly transition profitability to long run assumptions.

In my view, Tesla is unprofitable simply because it is growing revenue very fast. If you are growing say 50%/y, you need to spend considerable resources in advance of that growth in revenue. Some of this is accounted for as capital investments, but not all. R&D, staffing up and management burdened with growth all hit current expenses well in advance of incremental revenue. Hence, I prose that earnings can be modeled on the basis of current revenue and incremental revenue in the coming year. Thus,

E(t) = a R(t) - b (R(t+1)-R(t))

Dividing both sides by current revenue, leads to this simplification:

p(t) = a - b h(t)

We can solve for these two parameters as follows:

b = -(p(s) - p(t))/(h(s) - h(t))
a = p(t) + b h(t)

Thus, from our data and assumptions above, we obtain:

p = 0.1107 - 0.3563 h

This equation expresses the notion that growth is a drag on profitability. Notably we can determine the rate of revenue growth that would be profit neutral. By these estimates, Tesla is profitable when growth is less than 31.07% = 0.1107/0.3563.

We obtain the following curves:

 Year Rev $B Fwd Growth Profit Earn $B
2016 7.00 58.1% -9.64% -0.67
2017 11.07 57.8% -9.52% -1.05
2018 17.46 57.3% -9.33% -1.63
2019 27.46 56.5% -9.06% -2.49
2020 42.98 55.3% -8.64% -3.71
2021 66.75 53.6% -8.04% -5.37
2022 102.55 51.2% -7.18% -7.37
2023 155.09 47.9% -6.01% -9.33
2024 229.45 43.7% -4.49% -10.31
2025 329.66 38.5% -2.64% -8.70
2026 456.50 32.6% -0.56% -2.56
2027 605.48 26.6% 1.58% 9.55
2028 766.79 21.0% 3.58% 27.45
2029 927.97 16.2% 5.30% 49.19
2030 1078.19 12.3% 6.68% 71.97
2031 1211.14 9.4% 7.71% 93.36
2032 1325.37 7.3% 8.45% 112.00
2033 1422.76 5.9% 8.97% 127.57
2034 1506.72 4.9% 9.32% 140.38
2035 1580.80 4.3% 9.55% 150.99
2036 1648.13 3.8% 9.71% 159.98
2037 1711.14 3.5% 9.81% 167.84
2038 1771.66 3.3% 9.88% 174.96
2039 1831.00 3.2% 9.92% 181.62
2040 1890.09 3.1% 9.95% 188.01
2041 1949.58 3.1% 9.97% 194.29
2042 2009.94 3.1% 9.98% 200.55
2043 2071.49 3.0% 9.99% 206.85
2044 2134.47 3.0% 9.99% 213.25
2045 2199.06 3.0% 9.99% 219.77
2046 2265.41 3.0% 10.00% 226.45
2047 2333.62 3.0% 10.00% 233.30
2048 2403.80 3.0% 10.00% 240.34
2049 2476.02 3.0% 10.00% 247.58
2050 2550.38 3.0% 10.00% 255.02

A curious implication of this model is that Tesla remains unprofitable through 2026. This is a consequence of continuing to grow revenue faster than 31%/y.


We could modify the estimates such that long term profit is achieved by 2030 or other date. This blows up the real long term as we will see.

Assuming p(2030) = 10% leads to:

p = 0.1529 - 0.4289 h

 Year Rev $B Fwd Growth Profit Earn $B
2016 7.00 58.1% -9.64% -0.67
2017 11.07 57.8% -9.49% -1.05
2018 17.46 57.3% -9.27% -1.62
2019 27.46 56.5% -8.94% -2.45
2020 42.98 55.3% -8.44% -3.63
2021 66.75 53.6% -7.71% -5.15
2022 102.55 51.2% -6.68% -6.86
2023 155.09 47.9% -5.27% -8.18
2024 229.45 43.7% -3.44% -7.90
2025 329.66 38.5% -1.21% -4.00
2026 456.50 32.6% 1.29% 5.89
2027 605.48 26.6% 3.86% 23.39
2028 766.79 21.0% 6.27% 48.10
2029 927.97 16.2% 8.35% 77.45
2030 1078.19 12.3% 10.00% 107.82
2031 1211.14 9.4% 11.24% 136.17
2032 1325.37 7.3% 12.14% 160.86
2033 1422.76 5.9% 12.76% 181.52
2034 1506.72 4.9% 13.18% 198.58
2035 1580.80 4.3% 13.46% 212.81
2036 1648.13 3.8% 13.65% 224.95
2037 1711.14 3.5% 13.77% 235.66
2038 1771.66 3.3% 13.85% 245.41
2039 1831.00 3.2% 13.90% 254.59
2040 1890.09 3.1% 13.94% 263.46
2041 1949.58 3.1% 13.96% 272.18
2042 2009.94 3.1% 13.98% 280.90
2043 2071.49 3.0% 13.98% 289.69
2044 2134.47 3.0% 13.99% 298.63
2045 2199.06 3.0% 13.99% 307.75
2046 2265.41 3.0% 14.00% 317.10
2047 2333.62 3.0% 14.00% 326.68
2048 2403.80 3.0% 14.00% 336.53
2049 2476.02 3.0% 14.00% 346.66
2050 2550.38 3.0% 14.00% 357.09

So I'll leave this here for discussion. The obvious next step is to discount earnings. But first it is good to pause and reflect. What do we think about the prospect of unprofitable growth for so long? Is the growth worth it? Perhaps another decade of negative earnings has something to do with dilution.

Your formula assumes reinvestment of earnings as a constant percentage of net income will be needed to grow revenue by a given percentage. This is incorrect.

For example, gigafactory 5 will not cost 75% (just picking a number) or earnings (or gross profit let's say) as Gigafactory 1 did, even if the both cost say $5B to Tesla to build to full capacity. In fact, subsequent Gigafactories may cost even less!

So your model ignores the massive economies of scale and operating leverage Tesla will enjoy in the next decade due to its obsession with minimizing costs.

 

[jhm]

Your formula assumes reinvestment of earnings as a constant percentage of net income will be needed to grow revenue by a given percentage. This is incorrect.

Hmm, I don't follow your claim here.

I'm assuming that the profit margin is a function of revenue growth, p(t) = a - b h(t). Are you comfortable with showing me algebraically how implies your claim about reinvestment? I'm not aware that I am making any assumption about reinvestment of earnings, but perhaps you have a better showing this.

I get that the cost of building out say 1GWh/yr capacity will decline over time as learning curve and other efficiencies kick in. But it is also true that the revenue per GWh will decline over time as a response to competition and all those same efficiencies. So the cost of capacity gets cheaper even as revenue stream per capacity declines. If these ratios remain proportion proportional, then the cost of growth, b, remains the same. If they don't remain proportional, then you need to have some rationale for how this changes over time.

Moreover, this rationale would need to withstand competitive pressure. Right now, competitors are not exerting enough pressure to force Tesla to sell batteries or cars for less. As Tesla approaches its long term market share, whatever that may be, I am making the tactic assumption that it is in fact competition that is limiting growth. The only exception to this would be if Tesla were destined to become a monopoly wherein consumer demand is the limit to revenue growth, not competition from other EV makers, etc. I am not willing to value Tesla on the assumption that it becomes a monopoly. So I accept that competition will reach a level of parity with Tesla such that Tesla can no longer grow market share. At that level of parity, the competition is also paying the same price for growth as Tesla. If one competitor could grow at lower cost, then it would and so take market share from others. So long term, we must assume so sort of parity that leads to stable market share. So for example, Toyota and VW have being vying for the largest share of the auto market for years. It is very hard for one to gain on the other, and so the revenue growth of both should pretty much track growth in the auto market as a whole. If Toyota thought it could increase its earnings by growing revenue substantially faster than VW, it would, and vice versa for VW. So twenty years from now, I don't know who will be vying neck in neck with Tesla for growth in EV market share, but whoever they are they too will be a formidable competitor. Whatever advantages we may think Tesla enjoys at this moment, those top competitors will eventually be matching it or coming damn close.

 

[ValueAnalyst]

Hmm, I don't follow your claim here.

I'm assuming that the profit margin is a function of revenue growth, p(t) = a - b h(t). Are you comfortable with showing me algebraically how implies your claim about reinvestment? I'm not aware that I am making any assumption about reinvestment of earnings, but perhaps you have a better showing this.

I get that the cost of building out say 1GWh/yr capacity will decline over time as learning curve and other efficiencies kick in. But it is also true that the revenue per GWh will decline over time as a response to competition and all those same efficiencies. So the cost of capacity gets cheaper even as revenue stream per capacity declines. If these ratios remain proportion proportional, then the cost of growth, b, remains the same. If they don't remain proportional, then you need to have some rationale for how this changes over time.

Moreover, this rationale would need to withstand competitive pressure. Right now, competitors are not exerting enough pressure to force Tesla to sell batteries or cars for less. As Tesla approaches its long term market share, whatever that may be, I am making the tactic assumption that it is in fact competition that is limiting growth. The only exception to this would be if Tesla were destined to become a monopoly wherein consumer demand is the limit to revenue growth, not competition from other EV makers, etc. I am not willing to value Tesla on the assumption that it becomes a monopoly. So I accept that competition will reach a level of parity with Tesla such that Tesla can no longer grow market share. At that level of parity, the competition is also paying the same price for growth as Tesla. If one competitor could grow at lower cost, then it would and so take market share from others. So long term, we must assume so sort of parity that leads to stable market share. So for example, Toyota and VW have being vying for the largest share of the auto market for years. It is very hard for one to gain on the other, and so the revenue growth of both should pretty much track growth in the auto market as a whole. If Toyota thought it could increase its earnings by growing revenue substantially faster than VW, it would, and vice versa for VW. So twenty years from now, I don't know who will be vying neck in neck with Tesla for growth in EV market share, but whoever they are they too will be a formidable competitor. Whatever advantages we may think Tesla enjoys at this moment, those top competitors will eventually be matching it or coming damn close.

E(t) = a R(t) - b (R(t+1)-R(t))

This equation basically says:

1. If Tesla reduces revenue growth to 0%, then earnings will equal 10% of revenue in a given year.
2. For any growth assumed for next year, current year's earnings must be reduced by b (forward growth rate), which basically is the reinvestment requirement or retention ratio, which basically approximates 1 - free cash flow yield

Since b is a constant in your model, you're assuming a certain percentage of a given year's earnings must be reinvested into the business to keep the company growing at a given revenue growth rate.

To illustrate: if we assume, in year 2020, Tesla has $100B revenue and net income of $10B (which the company will be able to achieve with Gigafactory 1 and 2 alone) your model is predicting, in order to grow to $150B in 2021, Tesla would need to invest an additional ~$35B in capex and operating expenses in one year. Please correct me if I'm wrong.

I understand your model is quantitative, but it is also important to step back and ask if it makes sense. After Tesla triples its Supercharger network in 2018, which I estimate will cost less than $1B, and improves the build quality of its cars reducing need for additional service centers, and we already know it won't need "sales" centers for many years, the only other thing left to spend money on: R&D and Gigafactories.

Gigafactories cost ~$0.5B per year per Gigafactory, and even lower at initial stages, so even if we assume Tesla is building four Gigafactories in 2020, that's only ~$2B per year. Keep in mind that 4 simultaneous additional gigafactories in 2020 would also mean much higher than 50% annual revenue growth.

In other words, your model is assuming $33B increase in R&D expenses from 2020 to 2021.

When Apple's trailing twelve month ("TTM") revenue grew from $100B to $150B, its TTM R&D expense grew by $1B.

When Apple's trailing twelve month ("TTM") revenue grew from $100B to $150B, its TTM SG&A expense grew by $2B.

Please explain to me what Tesla will do with the extra $30 BILLION that you are assuming it will need to spend in 2020.

The reason why your model is producing such an absurd result is because you're assuming b will have to be constant based on one data point. In fact, b, in the equation I cited above, will decline dramatically and continuously as Tesla benefits from operating leverage in the coming years.

 

[ValueAnalyst]

E(t) = a R(t) - b (R(t+1)-R(t))

This equation basically says:

1. If Tesla reduces revenue growth to 0%, then earnings will equal 10% of revenue in a given year.
2. For any growth assumed for next year, current year's earnings must be reduced by b (forward growth rate), which basically is the reinvestment requirement or retention ratio, which basically approximates 1 - free cash flow yield

Since b is a constant in your model, you're assuming a certain percentage of a given year's earnings must be reinvested into the business to keep the company growing at a given revenue growth rate.

To illustrate: if we assume, in year 2020, Tesla has $100B revenue and net income of $10B (which the company will be able to achieve with Gigafactory 1 and 2 alone) your model is predicting, in order to grow to $150B in 2021, Tesla would need to invest an additional ~$35B in capex and operating expenses in one year. Please correct me if I'm wrong.

I understand your model is quantitative, but it is also important to step back and ask if it makes sense. After Tesla triples its Supercharger network in 2018, which I estimate will cost less than $1B, and improves the build quality of its cars reducing need for additional service centers, and we already know it won't need "sales" centers for many years, the only other thing left to spend money on: R&D and Gigafactories.

Gigafactories cost ~$0.5B per year per Gigafactory, and even lower at initial stages, so even if we assume Tesla is building four Gigafactories in 2020, that's only ~$2B per year. Keep in mind that 4 simultaneous additional gigafactories in 2020 would also mean much higher than 50% annual revenue growth.

In other words, your model is assuming $33B increase in R&D expenses from 2020 to 2021.

When Apple's trailing twelve month ("TTM") revenue grew from $100B to $150B, its TTM R&D expense grew by $1B.

When Apple's trailing twelve month ("TTM") revenue grew from $100B to $150B, its TTM SG&A expense grew by $2B.

Please explain to me what Tesla will do with the extra $30 BILLION that you are assuming it will need to spend in 2020.

The reason why your model is producing such an absurd result is because you're assuming b will have to be constant based on one data point. In fact, b, in the equation I cited above, will decline dramatically and continuously as Tesla benefits from operating leverage in the coming years.

@jhm - I'd be interested to read your thoughts on Tesla's operating leverage as I explained above.

 

[jhm]

@jhm - I'd be interested to read your thoughts on Tesla's operating leverage as I explained above.

Honestly, I don't follow your points. I am not modeling cash flows or the retention of earnings. That would require a much more explicit formulation than what I am attempting here.

My here is to estimate long term earning once one is looking past visibility into near term business plans. So if you want to cash flow explicitly out as many years as you think you can do so, fine. But eventually you get to a point where you simply do not know what a company will be spending its money on. For example, how much will Tesla spend on Gigafactory 13, and when will that happen? I don't know, do you? This is simply beyond visibility.

At some point you have to make some extremely simplifying assumptions about how earnings will evolve. If I have already assumed a particular revenue curve, I next want to define an earnings curve that is consistent with that. So what I am doing here is simply approximating earning as a function of revenue growth. The simplest functional form is a linear model. Think of this as a sort of regression model. If a company tends to incur expenses in advance of revenue growth, then as a first order approximation, earning is linear function of anticipated growth. Keep in mind that investment are not earnings related. So there is no accounting for actual cash flow here, just revenue and expenses. So think about mundane stuff like needing to hire and train a larger sales force in one year so that more sales are recognized in the next year. So payroll goes up one year so that revenue can go up the next. There is no retention of earnings here, because what was spent on a larger staff was simply an expense. For another example, Tesla was unprofitable last year. The reason why it was willing to operate at a loss is simply because it believes it can grow revenue and have future earnings. If Tesla tried to delay incurring certain expenses, it would probably find that it could not grow quite as fast.

So there must be some relationship between profitability and growth. Higher growth generally comes at a cost of near term earnings. There are infinite ways to model that if you want all sorts of complexity, but a linear function is one of the simplest.

Qualitatively one upshot here is that you can make a distinction between hypergrowth, profitable growth and decline. Hypergrowth is when growth is so fast that the firm is unprofitable, g > a/b. Decline is when g < 0, but here p > a. Normal profitable growth is thus between 0 and a/b. Terminal values in typical DCF models must exclude the possibility of extended hypergrowth. So the analyst winds up assuming some positive earning level and a growth rate less than discount rate. I find this limiting and unnecessary. So growth adjusted earnings model allows one to assume hypergrowth going into the terminal value portion of the model so long as revenue growth is assumed to converge to some rate below discount. And assuming an ultimate market share is sufficient for that. This was reallybthr genesis of the idea. I wanted something just a little more flexible than a geometric growth model, but still very simple.

So just think of this as a terminal value model. You can play around with the parameters as you see fit. You can even set b = 0, if you don't like that term.

But I would leave you with a question to ponder, what if Tesla continues to grow at above 33%/y for a very long time? Is it really possible to grow that fast and be profitable? And what if it isn't, is that a bad thing or a really high value thing? I've noticed that you have a tendency to want Tesla to get to some state of high, but profitable growth. Is that because you know how to value profitable growth? Or would you be just as enthusiastic about extended hypergrowth? Tesla is one of those rare companies that dares us to contemplate the value of extreme growth.

 

[ValueAnalyst]

Honestly, I don't follow your points.

Ok I'll make my point very simple.

Your simple model is assuming that Tesla will need to invest 10x the money into its infrastructure Apple did to go from $100B to $150B revenue.

Can you please explain your reasoning?

 

[dc_h]

Ok I'll make my point very simple.

Your simple model is assuming that Tesla will need to invest 10x the money into its infrastructure Apple did to go from $100B to $150B revenue.

Can you please explain your reasoning?

Foxconn

 

[landis]

Foxconn

Panasonic?

 

[ValueAnalyst]

Foxconn

That's not R&D or SG&A. If Apple bought Foxconn, most of Foxconn's expenses would be in Apple's COGS. Only ~3% of Foxconn's expenses are R&D and SG&A.

 

[jhm]

Ok I'll make my point very simple.

Your simple model is assuming that Tesla will need to invest 10x the money into its infrastructure Apple did to go from $100B to $150B revenue.

Can you please explain your reasoning?

My model makes no assumption about investment. I am done with this discussion.

 

[adiggs]

Heya @jhm, with this lovely pullback we have going on, I'm curious what the BFPT price target has to say right now. My sense of things is that while this is a pretty nice pullback, it's not as extreme as I'm looking for to accumulate. But I think we're getting close.

I'm pretty sure if I saw a share price near $280 I'd be buying (where buying is really selling shares to buy DITM leaps, and increase total share exposure). I'm also pretty sure, right now, that $280 is too extremely low on the BFPT scale to have a likelihood of being seen, and that means I'll miss out on this accumulate opportunity.

Thanks!

 

[jhm]

Heya @jhm, with this lovely pullback we have going on, I'm curious what the BFPT price target has to say right now. My sense of things is that while this is a pretty nice pullback, it's not as extreme as I'm looking for to accumulate. But I think we're getting close.

I'm pretty sure if I saw a share price near $280 I'd be buying (where buying is really selling shares to buy DITM leaps, and increase total share exposure). I'm also pretty sure, right now, that $280 is too extremely low on the BFPT scale to have a likelihood of being seen, and that means I'll miss out on this accumulate opportunity.

Thanks!

Yeah, we're past due for an update. I've been rather busy lately. Not sure when I can get to this.

But if you look back at the latest, the targets are still pretty good.

Blind Faith Price Targets

So $280 is the 5th percentile BFPT (8% dilution) for end of this year, but for end of next year the same level target is about $380. So I think it is still unlikely that we'll see $280. But buying at current prices around $330 has very little downside through next year.

My own perverse trading strategy is to buy at a moderately low price and then buy more as the price drops some interval. So a few weeks back I bought at $336. I might buy again at $324 (not paying attention today). Then again at $312, $300, $288, and so on. Granted it's a weird approach, because I buy more when the trend is against me. But in my view, I don't know at any specific point in time how low the price will go. I simply decide if the current price is low enough and after buying, wait for the possibility that it may go lower. So right now it's $326. I don't know if tomorrow it will be $316 or $336. I've recently bought at $336, so I don't need more at that price, but if it goes lower, maybe I'm interested.

Good luck.

 

[bonaire]

Yeah, we're past due for an update. I've been rather busy lately. Not sure when I can get to this.

But if you look back at the latest, the targets are still pretty good.

Blind Faith Price Targets

So $280 is the 5th percentile BFPT (8% dilution) for end of this year, but for end of next year the same level target is about $380. So I think it is still unlikely that we'll see $280. But buying at current prices around $330 has very little downside through next year.

My own perverse trading strategy is to buy at a moderately low price and then buy more as the price drops some interval. So a few weeks back I bought at $336. I might buy again at $324 (not paying attention today). Then again at $312, $300, $288, and so on. Granted it's a weird approach, because I buy more when the trend is against me. But in my view, I don't know at any specific point in time how low the price will go. I simply decide if the current price is low enough and after buying, wait for the possibility that it may go lower. So right now it's $326. I don't know if tomorrow it will be $316 or $336. I've recently bought at $336, so I don't need more at that price, but if it goes lower, maybe I'm interested.

Good luck.

If you buy at lower prices, do you have options levels enough to sell puts at those levels? If it doesn't hit, you gain the premium. Now, that means you have to commit to 100 share contracts, of course. Another option is consider selling 2019 way OTM puts at say $180 or 200 strike just to collect the premium eventually. Buyers of such OTM puts are really unlikely to see the strike.

 

[ValueAnalyst]

Yeah, we're past due for an update. I've been rather busy lately. Not sure when I can get to this.

But if you look back at the latest, the targets are still pretty good.

Blind Faith Price Targets

So $280 is the 5th percentile BFPT (8% dilution) for end of this year, but for end of next year the same level target is about $380. So I think it is still unlikely that we'll see $280. But buying at current prices around $330 has very little downside through next year.

My own perverse trading strategy is to buy at a moderately low price and then buy more as the price drops some interval. So a few weeks back I bought at $336. I might buy again at $324 (not paying attention today). Then again at $312, $300, $288, and so on. Granted it's a weird approach, because I buy more when the trend is against me. But in my view, I don't know at any specific point in time how low the price will go. I simply decide if the current price is low enough and after buying, wait for the possibility that it may go lower. So right now it's $326. I don't know if tomorrow it will be $316 or $336. I've recently bought at $336, so I don't need more at that price, but if it goes lower, maybe I'm interested.

Good luck.

Hi @jhm Thank you for keeping us updated on your model. When you get a chance, could you pease provide an update with 2% and 4% equity dilution? No rush. Thanks in advance.

 

[adiggs]

If you buy at lower prices, do you have options levels enough to sell puts at those levels? If it doesn't hit, you gain the premium. Now, that means you have to commit to 100 share contracts, of course. Another option is consider selling 2019 way OTM puts at say $180 or 200 strike just to collect the premium eventually. Buyers of such OTM puts are really unlikely to see the strike.

I know I've made use of selling puts, and will do so again. Thanks for mentioning the approach - I hadn't really thought about it in the current context, but it's an alternative that might prove more attractive and more easily implemented.

 

[bonaire]

I know I've made use of selling puts, and will do so again. Thanks for mentioning the approach - I hadn't really thought about it in the current context, but it's an alternative that might prove more attractive and more easily implemented.

For my only position right now, I have sold $240 strikes for Jan 2018. Should evaporate the premium. If anything like AMZN or MSFT happen after Q3, then I will close these out quickly and re-open something else. Too many variables make doing more than this very risky. If the cash flow is negative too badly, some funds may sell while the options houses will keep the balance within the volatility range already established for early November. I don't know that I will ever buy stocks again - only sell puts as a trading method. By doing so, it actually helps support the bull market by being the lower-edge of the volatility scope. I had established short puts of $120 strike for Jan 2019 but closed them during the latest downtrend (but still managed a 30% gain). I may re-open those on Oct 31 if volatility warrants it.

 

[jhm]

If you buy at lower prices, do you have options levels enough to sell puts at those levels? If it doesn't hit, you gain the premium. Now, that means you have to commit to 100 share contracts, of course. Another option is consider selling 2019 way OTM puts at say $180 or 200 strike just to collect the premium eventually. Buyers of such OTM puts are really unlikely to see the strike.

Yeah, I get that. I just don't care to trade in options, though selling is better than buying.