Blind Faith Price Targets

[adiggs]

Thou art a poet, and a mathematician. Truly a Renaissance person

 

[jhm]

Thou art a poet, and a mathematician. Truly a Renaissance person

I'm also a seminary dropout.

 

[jhm]

We are shifting from negative to positive sentiment. One thing that typically happens in this when sentiment shifts is that people want to shift the LTPTs too. It's human nature.

From the perspective of caution, one may look at the higher LTPTs to be cautious about selling or the lower LTPTs to be cautious about buying.

So let's consider now the Ludicrous LTPT of $7250 in 2028. This is very bullish and even if this is destiny we might not want to get too far ahead of ourselves on the path. The near term BFPT are $622 and $704 at 70% and 90% sentiment levels. It will take another two years before prices in that range will be blessed buying prices. Alot can happen in two years. We are likely to see many, many, many buying opportunities below $600 over the next two years. It is a valid choice to hold at $700, but the risk is this can go sideways for several years and one can miss out on blessed buying opportunities along the way.

This is not advice. All buy-and-hold investors like me need to ask ourselves at what price would we want to lighten our exposure? Also how? If we were to see prices near $600 soon, I would be thinking about covered calls with strikes in the $600 to $700 range. I could hold onto my shares, but use covered calls to collect rent for a year or two, while prices go sideways.

 

[woof]

I could hold onto my shares, but use covered calls to collect rent for a year or two, while prices go sideways.

Yeah, I tried that. It was working great...until suddenly the prices didn't go sideways! Kept rolling out, and out...and gave up. Lost my rent (and a bit more), but not my shares!

 

[jhm]

Yeah, I tried that. It was working great...until suddenly the prices didn't go sideways! Kept rolling out, and out...and gave up. Lost my rent (and a bit more), but not my shares!

Bummer.
There is something to be said for the simplicity of just holding shares. You can accept that prices could go sideways for years with a whole lot of volatility along the way, but when it comes time for Tesla to jump into a higher orbit, you're good to go. Nothing in the way.

 

[EinSV]

@jhm I went back over the updates since 1/29/18 and the interim price targets for each level seem to be falling over time while the discount rate increases.

For example, if I'm reading your chart correctly in your Jan. 29, 2018 post when you first used the new "nominal," "sport" and "ludicrous" framework the 50th percentile for "Sport" for 12/31/19 was $712 and the discount rate was 32.7%:

On January 7, 2020 the 50th percentile target had fallen to $487 and discount rate increased to 34.4%

Shouldn't the interim targets and discount rate remain the same over time for each level? What am I missing?

 

[EinSV]

I continue to believe that if Tesla executes on the Model 3 ramp (including gross margin targets) and barring macro hiccups or other surprises we are likely to see an inflection point between now and 2020 (as we had in 2013) where the SP pops and the implied discount rate to the LTPT drops from ~30% to a more "reasonable" number -- perhaps something closer to 20%. I'd hate to sell and miss out on the fun.

@EinSV
We seem to be in that inflection point?

@winfield100, need more time to confirm but it sure does seem like it now.

 

[jhm]

@jhm I went back over the updates since 1/29/18 and the interim price targets for each level seem to be falling over time while the discount rate increases.

For example, if I'm reading your chart correctly in your Jan. 29, 2018 post when you first used the new "nominal," "sport" and "ludicrous" framework the 50th percentile for "Sport" for 12/31/19 was $712 and the discount rate was 32.7%:

On January 7, 2020 the 50th percentile target had fallen to $487 and discount rate increased to 34.4%

Shouldn't the interim targets and discount rate remain the same over time for each level? What am I missing?

The percentiles shift as I update. I use the most recent 3 years of trades to get the percentiles. So last years we were going through such extreme and protracted bearishness that it was dragging the percentiles down and discounts up.


Now we've go another problem to sort out. Sentiment has seemed to change substantially as witnessed by current run. This begs the question of whether the bearishness of the last year or two is something that really can be repeated. In other words, are the current quantiles representative for the future?

Indeed, the methodology did poorly over that last episode. Twelve month returns underperformed prior benchmarking. The price was simply not snapping back as it had in the past. Now we have some confirmation that the market had simply gotten stuck on undervaluing Tesla. The sharp rise recently is in part recognition for advance the underlying company accrued for the last 3 years. BFPT was expecting that growth, and the company really was making valuable strides forward, but the market was not having it.

So now we have stress tested just how much the market valuation can be suppressed. This experience is good for calibrating BFPT for the extremes of bearishness, but now I'm concerned that we may not have adequate experience to stress test the extremes of bullishness. I don't think BFPT can be relied on to tell us when to reduce exposure. Of course, this is not really a problem for those of us in the buy-and-hold camp.

I will also point out that I was disappointed that revenue only grew 14.5% in 2019. The whole thesis around 50% annual revenue growth is up for reconsideration. Apparently the market does not mind that revenue growth has slowed. Profitability and positive FCF are more readily appreciated by the market. So Tesla may actually be a much better stock performer at slower growth rates.

 

[EinSV]

Indeed, the methodology did poorly over that last episode. Twelve month returns underperformed prior benchmarking. The price was simply not snapping back as it had in the past. Now we have some confirmation that the market had simply gotten stuck on undervaluing Tesla. The sharp rise recently is in part recognition for advance the underlying company accrued for the last 3 years. BFPT was expecting that growth, and the company really was making valuable strides forward, but the market was not having it.

Hmm, as I interpreted it the methodology signaled an extraordinary buying opportunity with the price in the low single digit percentiles or even below 1 percentile for an extended period of time. I guess that wouldn't be useful for short term movements in and out of the stock, but the very strong message to the faithful to "load up" on stock -- if followed -- would have led to catching a truly exceptional buying opportunity.

So now we have stress tested just how much the market valuation can be suppressed. This experience is good for calibrating BFPT for the extremes of bearishness, but now I'm concerned that we may not have adequate experience to stress test the extremes of bullishness. I don't think BFPT can be relied on to tell us when to reduce exposure. Of course, this is not really a problem for those of us in the buy-and-hold camp.

As mentioned in my response to @winfield100 I think there is a good case to be made that the recent runup is a delayed recognition that Tesla is in the pole position in a world that will shift rapidly to EVs, so the risk premium/discount rate to the long-term price target(s) should drop. In the short run, I'm not sure how to use that other than to just focus on the long-term opportunity. (If I’m right it may be tricky to model until things settle down?)

I will also point out that I was disappointed that revenue only grew 14.5% in 2019. The whole thesis around 50% annual revenue growth is up for reconsideration. Apparently the market does not mind that revenue growth has slowed. Profitability and positive FCF are more readily appreciated by the market. So Tesla may actually be a much better stock performer at slower growth rates.

I'm not concerned about growth.

2019 was a capacity building year with GF3 and initial Model Y production being built but no revenue coming from them. Overall capacity grew from 350K units/year to 640K units per year, or 83%. And despite relying only on existing products from Fremont (S3X), deliveries increased by 50%.

Also, the relatively small growth in revenue in 2019 came after a staggering 82.5% increase in 2018. Revenue growth for 2 and 3 years is 45% and 52%, with prospects for very big years in 2020 and 2021 as Model 3 production ramps at GF3, Model Y production ramps at Fremont, GF Shanghai and Berlin, Cybertruck deliveries begin, Solarglass roof ramps, etc. We have Semi waiting to storm the world, a smaller, high volume car in the design stages in Shanghai, and storage continuing to grow.

On the last call, Elon reiterated 50%+ growth moving forward. Based on the performance so far and the pipeline of products and Gigafactories my faith has not been shaken.

 

[EinSV]

Andrea James may be suggesting something along the same lines I have been about the stock re-setting to a new level

 

[jhm]

Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable
This Overton Window post may be useful in this discussion here.

 

[jhm]

Do you believe?

Here's an update of our BFPT. The curious thing is that much more aggressive LTPTs are floating in the media than what we have been looking at here. The ARK price targets are for end of 2024, while ours are for beginning of 2028, so about a 3 years apart. The ARK Bear target is $1500, right in line with our Nominal $3250 target at the 50% confidence level. Recall that our Nominal target was based on Musk just barely fulfilling his CEO compensation package with some dilution. So it is nice to see ARK has this as their Bear case.

Next our Ludicrous $7250 is more conservative than ARK Base target of $7000 (3 years sooner). End of 2024 Ludicrous 50% sentiment BFPT is about $2650. So to get to LPTP that has comparable median BFPT at ARK Base Target, we need to shoot for a little over $30k in beginning of 2028. So I'm posting those below. This ARK Base is out-there I'm going to forego attempting their Bull case.

So let's try to digest what this ARK Base LTPT is suggesting. Firstly, note that a current price of $748 is in the 60% percentile of sentiment. The 90% percentile would be $1005. Hitting $970 last week was in the high 80s of sentiment. That's high, but not at ridiculously high as many market participants might think. If we look out 12 months, the median BFPT is $1050. So I think it is pretty clear that the market has not really absorbed ARK's Base Target. If the market were to take it seriously, the price would quickly move past $1000. Also not that along the median line, the implied discount is 62%. This would be a truly insane level of price appreciation to sustain for about 5 years. So I don't think that median sentiment would remain on a 62% implied discount. Along the path with 52% implied discount (currently 98% sentiment), the current price would be over $1080. So like I said, the market has not really taken this base case from ARK to heart.

Even our Faithful Blind have not really allowed ourselves to hope for a long-term target this high. Do we dare let ourselves believe this target? How would it change the way you invest if you really believed Tesla would hit $7000 by end of 2024?

Nominal LTPT $3,250​
Percentile​	Implied Discount​	2020-02-07​	2020-03-08​	2021-02-06​	2022-01-01​	2023-01-01​	2024-01-01​	2025-01-01​	2026-01-01​
99.6%​	20.3%​	$748​	$760​	$900​	$1,063​	$1,278​	$1,537​	$1,850​	$2,225​
2%​	37.9%​	$252​	$259​	$347​	$464​	$640​	$883​	$1,219​	$1,680​
10%​	36.4%​	$275​	$282​	$375​	$496​	$677​	$923​	$1,260​	$1,719​
20%​	32.5%​	$347​	$355​	$460​	$592​	$784​	$1,039​	$1,378​	$1,825​
30%​	30.4%​	$394​	$403​	$514​	$652​	$851​	$1,109​	$1,447​	$1,886​
50%​	27.7%​	$464​	$473​	$593​	$739​	$944​	$1,205​	$1,540​	$1,967​
70%​	25.8%​	$525​	$535​	$660​	$811​	$1,020​	$1,283​	$1,614​	$2,030​
90%​	24.0%​	$585​	$596​	$726​	$882​	$1,094​	$1,357​	$1,684​	$2,089​
98%​	22.7%​	$638​	$649​	$783​	$941​	$1,155​	$1,418​	$1,740​	$2,136​

Ludicrous LTPT $7,250​
Percentile​	Implied Discount​	2020-02-07​	2020-03-08​	2021-02-06​	2022-01-01​	2023-01-01​	2024-01-01​	2025-01-01​	2026-01-01​
96.7%​	33.0%​	$748​	$766​	$995​	$1,287​	$1,713​	$2,278​	$3,034​	$4,036​
2%​	51.7%​	$264​	$273​	$400​	$582​	$883​	$1,339​	$2,033​	$3,084​
10%​	50.0%​	$288​	$298​	$432​	$623​	$934​	$1,401​	$2,104​	$3,155​
20%​	45.7%​	$364​	$375​	$530​	$744​	$1,083​	$1,578​	$2,301​	$3,351​
30%​	42.6%​	$430​	$442​	$613​	$844​	$1,204​	$1,717​	$2,452​	$3,498​
50%​	39.1%​	$524​	$538​	$729​	$982​	$1,366​	$1,900​	$2,646​	$3,681​
70%​	36.2%​	$620​	$636​	$845​	$1,116​	$1,521​	$2,071​	$2,823​	$3,846​
90%​	34.0%​	$706​	$723​	$946​	$1,232​	$1,651​	$2,212​	$2,967​	$3,976​
98%​	32.7%​	$762​	$780​	$1,011​	$1,305​	$1,733​	$2,300​	$3,055​	$4,055​

ARK Base LTPT $30,000​
Percentile​	Implied Discount​	2020-02-07​	2020-03-08​	2021-02-06​	2022-01-01​	2023-01-01​	2024-01-01​	2025-01-01​	2026-01-01​
61.6%​	59.0%​	$748​	$777​	$1,190​	$1,807​	$2,875​	$4,572​	$7,280​	$11,578​
2%​	79.4%​	$287​	$302​	$515​	$873​	$1,565​	$2,808​	$5,044​	$9,046​
10%​	77.5%​	$313​	$328​	$555​	$931​	$1,652​	$2,932​	$5,211​	$9,246​
20%​	72.7%​	$388​	$405​	$670​	$1,096​	$1,893​	$3,270​	$5,657​	$9,772​
30%​	67.2%​	$502​	$523​	$839​	$1,333​	$2,230​	$3,729​	$6,245​	$10,444​
50%​	61.9%​	$648​	$675​	$1,050​	$1,621​	$2,625​	$4,250​	$6,892​	$11,159​
70%​	56.6%​	$845​	$877​	$1,324​	$1,983​	$3,106​	$4,865​	$7,629​	$11,948​
90%​	53.3%​	$1,005​	$1,040​	$1,539​	$2,262​	$3,467​	$5,313​	$8,151​	$12,492​
98%​	51.9%​	$1,081​	$1,119​	$1,641​	$2,392​	$3,632​	$5,515​	$8,383​	$12,730​

 

[jhm]

I like that we are getting back to prices more in line with BFPT. $650 is close to 70% sentiment under the Ludicrous Taget. I think we need to get down to near $400 to be in the blessed price range, maybe $420 is okay for our more Rastafarian brethren.

Why are some so eager to see $1000 come quickly? Why become disillusioned when it takes a little longer?

How many shares do you hope to own by the time Tesla reaches and sustains prices above $1000/sh. You've got a year or so to accumulate into this price. If we were trading closer to Sweet Mary Jane, it would be a whole lot cheaper and comfortable to acquire those shares. Ya mon, relax. Why you want to hurry so? Irie.

 

[jhm]

Beware of false profits and paper losses. Not long ago we were tempted by new all time high. We thought that the market had finally seen the true worth of Tesla. Perhaps we saw but a glimpse, a foretaste of things to come, but it was not yet time. Plagues have come upon the market, sending all stock prices into crashing lows. Should we dispair? Should we lose hope? No we are quite near the Blessed Accumulation Prices.

Fixing our eyes upon the Ludicrous LTPT, we find that we are merely in the 27th percentile. The Blessed Price for next 30 days is under $390. We will hunker down and wait patiently. If we are faithful, perhaps these blessed prices will come our way. Maybe tomorrow. The ganja price of $420 was sweet, but greater blessings are in store. Be patient, my Faithful Blind.

Ludicrous LTPT $7,250​
Percentile​	Implied Discount​	2020-03-17​	2020-04-16​	2021-03-17​	2022-01-01​	2023-01-01​	2024-01-01​	2025-01-01​	2026-01-01​
27.2%​	43.4%​	$429​	$442​	$615​	$819​	$1,174​	$1,683​	$2,415​	$3,462​
2%​	51.7%​	$276​	$285​	$418​	$582​	$883​	$1,339​	$2,033​	$3,084​
10%​	50.0%​	$301​	$311​	$451​	$623​	$934​	$1,401​	$2,104​	$3,155​
20%​	45.7%​	$379​	$391​	$552​	$744​	$1,083​	$1,578​	$2,301​	$3,351​
30%​	42.7%​	$446​	$459​	$636​	$843​	$1,203​	$1,717​	$2,451​	$3,497​
50%​	39.1%​	$543​	$558​	$755​	$981​	$1,366​	$1,900​	$2,646​	$3,681​
70%​	36.1%​	$643​	$660​	$876​	$1,119​	$1,524​	$2,075​	$2,827​	$3,849​
90%​	33.8%​	$739​	$757​	$989​	$1,246​	$1,666​	$2,229​	$2,984​	$3,991​
98%​	32.2%​	$808​	$827​	$1,069​	$1,335​	$1,765​	$2,334​	$3,090​	$4,086​

 

[Yamantasdivar]

Ya mon, relax.

Ha.

 

[adiggs]

Beware of false profits and paper losses. Not long ago we were tempted by new all time high. We thought that the market had finally seen the true worth of Tesla. Perhaps we saw but a glimpse, a foretaste of things to come, but it was not yet time. Plagues have come upon the market, sending all stock prices into crashing lows. Should we dispair? Should we lose hope? No we are quite near the Blessed Accumulation Prices.

Fixing our eyes upon the Ludicrous LTPT, we find that we are merely in the 27th percentile. The Blessed Price for next 30 days is under $390. We will hunker down and wait patiently. If we are faithful, perhaps these blessed prices will come our way. Maybe tomorrow. The ganja price of $420 was sweet, but greater blessings are in store. Be patient, my Faithful Blind.

Ludicrous LTPT $7,250​
Percentile​	Implied Discount​	2020-03-17​	2020-04-16​	2021-03-17​	2022-01-01​	2023-01-01​	2024-01-01​	2025-01-01​	2026-01-01​
27.2%​	43.4%​	$429​	$442​	$615​	$819​	$1,174​	$1,683​	$2,415​	$3,462​
2%​	51.7%​	$276​	$285​	$418​	$582​	$883​	$1,339​	$2,033​	$3,084​
10%​	50.0%​	$301​	$311​	$451​	$623​	$934​	$1,401​	$2,104​	$3,155​
20%​	45.7%​	$379​	$391​	$552​	$744​	$1,083​	$1,578​	$2,301​	$3,351​
30%​	42.7%​	$446​	$459​	$636​	$843​	$1,203​	$1,717​	$2,451​	$3,497​
50%​	39.1%​	$543​	$558​	$755​	$981​	$1,366​	$1,900​	$2,646​	$3,681​
70%​	36.1%​	$643​	$660​	$876​	$1,119​	$1,524​	$2,075​	$2,827​	$3,849​
90%​	33.8%​	$739​	$757​	$989​	$1,246​	$1,666​	$2,229​	$2,984​	$3,991​
98%​	32.2%​	$808​	$827​	$1,069​	$1,335​	$1,765​	$2,334​	$3,090​	$4,086​

Looking at the BFPT, we're trading today between the 90 and 98% range. Yowza!

I like returning to look at this periodically - helps me get my bearings.

 

[hershey101]

I've always found @jhm's "Ludacris" price target overly optimistic (and don't get me started on the sky-high stary-eyed ARKK valuations)... I tend to invest based on the bottom part of the Nominal price target... But the consistent beat of my expectations of the last 3 quarters has me reconsidering some fundamentals...

That being said, $900 is still an insane price for $TSLA, despite this outstanding quarter.

 

[ken830]

I've always found @jhm's "Ludacris" price target overly optimistic (and don't get me started on the sky-high stary-eyed ARKK valuations)... I tend to invest based on the bottom part of the Nominal price target... But the consistent beat of my expectations of the last 3 quarters has me reconsidering some fundamentals...

That being said, $900 is still an insane price for $TSLA, despite this outstanding quarter.

I find your lack of faith disturbing...

Just kidding! That's why it's Ludicrous! I, myself, have a lot riding on this, but am setting my expectations at a LTPT of $1.5-2.0K by 2030... If we end up closer to these blind-faith targets, I will be ecstatic!

 

[hershey101]

I find your lack of faith disturbing...

Just kidding! That's why it's Ludicrous! I, myself, have a lot riding on this, but am setting my expectations at a LTPT of $1.5-2.0K by 2030... If we end up closer to these blind-faith targets, I will be ecstatic!

Haha 2030? That's too far into the future for me... $3k by 2030 is very likely... Give or take 2 years because of COVID. I'm actively trading this though. Trying to grow my portfolio from $50k to $500k so I can own the 500 shares I want... 1/3rd of the way there so far.

 

[ken830]

I've been buy-and-hold-and-buy-some-more since early 2013 and ended up with over 1,100 shares in various accounts but the stock basically didn't move for nearly 8 years until late 2019. I bailed at the end of February at around $720 and bought back most of it $520 and keeping the rest as profit or as ammo to buy if the stock market tanks. This is my early retirement bet, so I have a lot riding on it, but I'm not going to take too much of a risk by actively trading it or expect it to hit crazy high values. I only need it to hit $2k to start thinking about reducing my work or looking for something more satisfying and/or lower pay. I'll just keep on holding on and buy when the opportunity presents itself.

Good luck to us all.