MorningWord 9/30/13: We have spent a good bit of time in 2013 writing and talking about the phenomena that has centered around TSLA, its Founder/CEO and the company’s product. After growing up in this business in the late 90s during a full fledged equity bubble, then subsequently suffering through the ensuing bear market left by the burst, I was fairly certain ten years ago that it would take decades before we witnessed manias around “concept” stocks again.
There were some very smart market participants back then that were certain that the valuations assigned to company’s like AtHome.com, Webvan.com & Pets.com were utterly ridiculous and that many of these stocks would ultimately go to zero (which many did), but placing bets as to when, turned out to be a very costly endeavor for most who attempted such a feat. Which brings me back to TSLA, I clearly recognize the price action since spring has been Euphoric, almost what you would expect for a biotech company that demonstrated dramatic progress on a cure for cancer, but TSLA is just making really expensive luxury electric vehicles with the past assistance of government cash and addressable market that for now appears to be less than 1% of the world’s population.
By now most of you know the story, the stock is up 463% year to date, has a market cap of $23 billion, close to half of GM’s, a hundred year old car company that is expected to have $157 billion in sales this year, compared to TSLA’s expected $2 billion. Obviously these are not apples to apples comparisons as TSLA is trading on future growth prospects while GM may never again see double digit revenue growth.
In late August back when TSLA was $167, I took a shot at buying very wide Put Butterfly (read here) with the idea that the upward momentum was faltering a bit as the stock consolidated below the previous highs. Well that didn’t work out (stock closed Friday at new highs ~$190) and as of this weekend I assure you this sort of trade in the name will not become a habit.
Yesterday I had the pleasure of driving my friend’s Model S, and I got to tell you, while I am not really a car guy this thing has the potential to cause insatiable demand by those from all walks of life. I am not going to get into the nitty gritty, but the this is the sort of finished product that I assume Steve Jobs might have traded in all of his iSuccess to have presided over.
SO here is the PSA, for those short sellers who want to dig in on this one, go Test Drive one, you may feel differently about your positioning if u can separate normal market behavior from reality . Obviously the product, the company’s financial prospects and the stock’s behavior are all inter-related, and it is also obvious that there are massive disconnects btwn those 3 factors at the moment, but one thing is for the certain, the product is AWESOME, in a way that true believers of the .Coms in the late 90s were never able to experience of their beloved stocks. The main point here, is that who knows where this thing stops going up, the more people who buy this care the more ambassadors there will be for Musk, Model S and possibly the stock.
The only real thing that my friend is pissed about his experience with TSLA is that he didnt buy the stock when he put the order in for the car in the spring, by the time he received delivery in August the car would have been paid for 🙂
As for my trade, it was just a trade, I looked to spend as little premium as possible with defined risk on the narrow chance of a big reversal in a defined period of time. I will take these sorts of shots every so often, but not likely to do so again in TSLA anytime soon. Remember 26% of the shares outstanding are sold short, and the top 5 holders control 55% of those shares with Musk owning 26% of the total. Lets just say that I wish I had driven my buddy’s rig in August prior to my bearish TSLA trade, I would not have considered such a foolish endeavor.
UPDATE: AFTER ENIS READ THIS, HE PROCLAIMED “THAT”S THE TOP!!”