Short-Term TSLA Price Movements - 2016

[Drax7]

With cash or on margin ?

To ask the question is to answer it

Very interesting.


The better question is if Tesla board members with trusts and various other types of funds, specifically those who have recused themselves from voting on the merger, have already indirectly acquired more shares of SolarCity over the past few weeks.

Tesla does not have cash to purchase solarcity stock, that's why I suggested
A margin account.

 

[jhm]

With cash or on margin ?

To ask the question is to answer it

Neither, it is a transaction in stocks. So Tesla has to issue shares sufficient for the transaction. SolarCity may issue shares as well so that the two companies can exchange shares and hold in treasury. So if SolarCity holds Tesla shares in treasury, it can sell them and buy back SolarCity shares at below the exchange rate to minimize the number of Tesla shares that must be put in circulation. Alternatively, if there is no exchange of shares, Tesla holds its own shares in treasury from which it can sell some and purchase SolarCity shares. Both approaches minimize Tesla shares in circulation required to complete the acquisituon. This also gives SolarCity shareholders the opportunity to cash out their shares at quite near the exchange rate, if they would rather not wait to receive Tesla shares.

 

[AlMc]

There has been much recent discussion about the initiation of a short squeeze OR that the stock price now is being supported by large institutions calling in their short sold shares. I have been discussing this with several people more knowledgeable than I which has resulted in this question:

If the institutions can/would do this, would it not be wiser to wait till closer to the actual acquisition vote as they would be collecting some nice interest payments until the voting gets closer?

 

[mmd]

As a layman, I suspect the steps in the process include

I've seen your previous posts, and this one. These posts don't seem to be from a layman. Your posts are one of the most informative on this forum. But whatever you say

 

[nienco2]

It's funny you mention "Bear Christmas in July" ....

I have been thinking since the big non-event on Tuesday that TSLA shorts/bears have to be feeling just like the Grinch on Christmas morning. What a HUGE disappointment that even after all that seemingly bad news, TSLA just keeps chugging along.

You all seem bored so I thought I’d chime in and subject myself to some ridicule as a long term bear.


As I have said in the past the extraordinary short positions give TSLA a safety net. Down will be a gradual then sharp, I think, so stop bashing the shorts they are helping you immensely the last three weeks. Being so hard to borrow has probably led to some short term bears to cover here.


As I search my soul there are only confirmations that the business does not justify the current price. Obviously slowing S demand, (see introduction of lower priced 60) and who knows what’s going on with the X. The economics are continuing to deteriorate and these two products look unlikely to carry the load until the Model 3. That vehicle has it’s own troubling financial profile. Departure of the high level executives, the SCTY craziness and the twittering CEO, look like some “soft” variables giving me confidence that 2018 puts, while selling a couple near term puts to knock off premium, will eventually work out. On the other hand I’ve certainly not seen anything in the last month that I would consider a fundamentally positive developments, but perhaps I've missed those?


Whompy wheels, Autopilot issues may turn out to be nothing but based on some experience with the NHTSA I wouldn’t count those issues as resolved just yet. But in any case it is the stock price that is out of whack with the fundamentals of the business.


cheers

 

[dha]

But in any case it is the stock price that is out of whack with the fundamentals of the business.

TSLA's Price/Sales ratio has been sliced in half since the first time the stock price was as these levels (Q1 2014). As a bear, what Price/Sales would you find reasonable for a company continuing to grow sales 50% YOY?

 

[30seconds]

TSLA's Price/Sales ratio has been sliced in half since the first time the stock price was as these levels (Q1 2014). As a bear, what Price/Sales would you find reasonable for a company continuing to grow sales 50% YOY?

Agree. Looking back at Tesla financials or even over the next quarter or two is not (in my opinion) a valid way to value a high growth company. And so far, with some bumps, Tesla has delivered on high growth and has laid out plans to continue to do so.

Plus lets wait and see about the X. Luxury SUV is a much larger segment than luxury sedans. I wouldn't be surprised if X orders outpace S orders by the end of Q3, while S+X continues to grow.

 

[mmd]

There has been much recent discussion about the initiation of a short squeeze OR that the stock price now is being supported by large institutions calling in their short sold shares. I have been discussing this with several people more knowledgeable than I which has resulted in this question:

If the institutions can/would do this, would it not be wiser to wait till closer to the actual acquisition vote as they would be collecting some nice interest payments until the voting gets closer?

Yes, exactly. As S3 itself said in its tweet, pension funds aren't allowed to lend their shares. So they won't recall anything. We saw similar high borrow rates in April , as seen in the thread tracking this. It is more likely that the market makers are making some changes to control these. Goldman and Morgan, two big supporters of Tesla, hold few million TSLA shares each. They can move the shares around to control the pricing and keep it in a sweet spot, and earn steady income by lending their shares.

 

[nienco2]

TSLA's Price/Sales ratio has been sliced in half since the first time the stock price was as these levels (Q1 2014). As a bear, what Price/Sales would you find reasonable for a company continuing to grow sales 50% YOY?

With all due respect price to sales is not an appropriate metric for the manufacturer of automobiles. I could sell a ton of dollars for 90 cents, would you invest in my venture?Ultimately it is the amount of earnings per share that will determine the value of the shares you own, not sales and non-gaap gross margin.

 

[dha]

With all due respect price to sales is not an appropriate metric for the manufacturer of automobiles.

Price/Sales is used to compare automakers all the time.

I could sell a ton of dollars for 90 cents, would you invest in my venture?

No, you'd have negative gross margins so that would be silly! Tesla has gross margins > 20%

Ultimately it is the amount of earnings per share that will determine the value of the shares you own

Earnings are completely irrelevant for a company growing as rapidly as Tesla. It is like projecting the future earnings of a bright medical student based on his paltry (or non-existent) salary while he is still training. That kind of logic would lead you to conclude that a middle-aged high school dropout flipping burgers for minimum wage will earn more money over his/her lifetime than the bright medical student! There's a reason venture capitalists don't value companies based on present earnings.

...It's also precisely why Price/Sales--as well as its trajectory and compression--is one of the most reasonable ways to gauge this company's value. It lets you do away with the distortions in earnings inherent to high-growth companies and ask "what does the company's future look like, assuming they'll achieve *at least* industry average operational efficiency at steady-state"

Price/Sales is indeed compressing, and rapidly. TSLA was never a wise short. But it is twice as unwise right now as it was two years ago, and it will be twice as unwise two years hence.

 

[Mike Smith]

Price to sales does matter when you're revolutionizing a product. The only reason auto margins are low is because the same companies have been making basically the same products for 50 years. Tesla is doing to autos what apple did to phones - a product that was also at near zero margins.

 

[MikeC]

Yes, exactly. As S3 itself said in its tweet, pension funds aren't allowed to lend their shares. So they won't recall anything.

No, it said they aren't allowed to lend shares when corporate actions are pending. So they do have to recall them now that an offer for an acquisition was made.

 

[brian45011]

I've seen your previous posts, and this one. These posts don't seem to be from a layman. Your posts are one of the most informative on this forum. But whatever you say

Thank you for the compliment. I have not been employed for over a decade and a half. The accessibility to information the internet affords never ceases to amaze me.

 

[mmd]

No, it said they aren't allowed to lend shares when corporate actions are pending. So they do have to recall them now that an offer for an acquisition was made.

No mention of 'pending. See last sentence in 3rd paragraph. 'have corporate actions' probably means any stock that has such actions from time to time. But I admit I'm no expert. If you provide a reliable source to prove your statement ( or Ihor's for that matter), I will gladly agree with your assertion.



BTW, I don't see any pension fund in the top 20-30 holders of TSLA. So this argument may not mean anything. The top holders yield a lot more power in controlling TSLA price movements.
Tesla Motors, Inc. (TSLA) Institutional Ownership & Holdings

 

[colettimj]

[snip]
Ultimately it is the amount of earnings per share that will determine the value of the shares you own, not sales and non-gaap gross margin.

So all those folks that bought AMZN before it ever posted earnings must be kicking themselves.

 

[mmd]

TSLA's Price/Sales ratio has been sliced in half since the first time the stock price was as these levels (Q1 2014). As a bear, what Price/Sales would you find reasonable for a company continuing to grow sales 50% YOY

Not to nitpick, but this is a bit exaggerated. Your statement led me to check on these a bit.

Quarter ****** Revenue -- Share count
Q1 2014 letter: 620.5 M ---- 123.5M
Q1 2016 letter: 1147 M ---- 133M
Q2 2016 : < 1147 M (exp) --- 147.2M

Since the SP is same now as around April 2014, let's just say it is 216. Then, P/S after Q1 of 2014 was 43. P/S for Q2 will be 27.72. Not quite half as you said, but close (64%).
Also, with 50% sales growth each year, in 2 years, revenues should have been 2.25 times of Q1'14 revenue. But it is only 1.84 times, implying around 35% yoy growth.

Edit: OK, I made a mistake. I only took quarterly sales (not annual), so P/S is not correct, but the ratio should be okay. To get annual P/S, divide by 4.

 

[JRP3]

But in any case it is the stock price that is out of whack with the fundamentals of the business.

Said every bear since the IPO...

 

[MikeC]

No mention of 'pending. See last sentence in 3rd paragraph. 'have corporate actions' probably means any stock that has such actions from time to time. But I admit I'm no expert. If you provide a reliable source to prove your statement ( or Ihor's for that matter), I will gladly agree with your assertion.

I'm no expert, either. I'll agree it's worded poorly but I think it's fairly clear that it is referring to pending corporate actions and not just a general ability to initiate corporate actions.

No direct source but I think we can figure out a bit from the context. First, why would it be mentioned as an example in the article if it runs counter to the thesis of the article? Second, don't all public corporations have the ability to merge/acquire? If so, every stock "has corporate actions" and so the sentence in question would be superfluous.

 

[nienco2]

Price/Sales is used to compare automakers all the time.
.

OK, choose it if you like.

No, you'd have negative gross margins so that would be silly! Tesla has gross margins > 20%

I know you understand that gross margin is what's left after just physically building the car prior to deducting all the other costs of running that business which last year meant $924mil gross profit. Unfortunately operating expenses were $1,640 and interest expense was $119mil which are a couple of numbers ignored when using price to sales and gross margin as valuation measures

I don't intend to argue, if you're happy investing based on gross margins and price to sales for this business that's your prerogative. The only reason I even bother to look at this thread and post is thinking perhaps a counter balancing view might add value to a thread that appears to be about investing.

 

[nienco2]

Said every bear since the IPO...

Admittedly you guys that bought at the IPO did great but plenty of opportunities to profit short over the last 18 months, so it's a good stock for everyone