Chaim Siegel

Can Tesla Hold $300? And Some Other Random Thoughts

Source

Tesla’ stock held $300 yesterday but has been in a sharp downtrend since doubt surfaced about going private.

Go Profitable Or Go Private

At some point fundamentals will drive the shares again. Going profitable is much more valuable to shareholders than going private.

So while going private could fetch a measly $420, we still think going profitable can get the stock to $1000+ (join to see model). We may be low seeing Ark Investments expecting $4,000 per share.

Reuters ranks us with 4/5 stars for our estimates. Our numbers factor into the Street numbers. Our $1,000+ target is based on those same high ranking estimates

Timing

Tesla’s stock is for sure volatile so we want to try to build that position at good prices. Building at poor entries decreases confidence in the position. I want conviction to hold to $1,000 but to do that great entries help a lot.

Entering at strong entries helps have confidence to keep the position for the long term.

We had noted previously that there’s huge longer term support at about $280.  Yes yesterday looked like the stock can hold $300 which is a shorter term support.

But we’d note that the stock’s still been in a sharp downtrend.

How To Add

To add to a position we want to see it start moving up. We don’t mind getting in at strong long term supports because we’d expect the fundamentals will take us higher than that level. But even better than strong support levels is we’d simply want to see the stock stop moving down and start moving up. Somewhat simplistic, but it works.

We’ve seen managers go out of business by constantly averaging down. We don’t mind lower averages but only if we see the stock moving up.

We don’t mind adding even higher and missing the low. I’m never thinking I’m smart enough to catch bottoms. I’d rather see the stock move up, which others will then see and that can get things going all over again.

Earnings

Earnings report in October. Production and delivery whispers will become front and center again.

The Street seems way too low for $2.90 in 2019 based on our model. We’re at over $20.00 for 2019. That’s based on the company’s plans for 2018 and company comments on earnings calls about 2019. Sorry for the plug but our estimates are ranked highly too. We have no problem seeming way too high. Subscribers know we can be right more often than not.

Too Bearish

Analysts have been too bearish digging themselves a ditch they can’t get out of. Maybe they don’t have the experience, not sure, but going profitable is as good as you can get after years of losses.

I have no idea why analysts aren’t swiveling to accept that this story is about to get much much better. Earnings are what drive stock prices and you’re about to get a big swing in earnings as they go positive.

When Do Sell-Siders All Come Aboard

I do have an opinion why sell-siders are not swiveling. Sell-siders are also a herd. They want to see stock prices move up rather than have confidence in their work. 

We have confidence in our work to say that we expect the stock to rise big.  But when will the sell-side get aboard? They’ll jump aboard and believe in their work only when the stock hits $400 and $500. Then you’ll get all the upgrades that the story’s suddenly amazing. That’s how the sell-side works. But you knew that. They don’t get paid to predict very far or very high. That’s our opportunity to exploit.

Conclusion

I find myself writing about Tesla a lot publicly. I hear myself. This earnings inflection is so big. My whole career I’m focused on earnings. That’s what drives individual stock prices. That’s what really drives the market; that and interest rates.

So when you have a company saying we’re hitting earnings leverage as we ramp Model 3s and we’re going profitable, why not take heed?

I still read many comments and opinions out there that this company is a loss-maker. Ok, rearview mirror loss-maker. They are telling you profit. Nobody, not the sell side, not the bears, not the shorts, believe it.

That’s opportunity.

We haven’t had a multiple choice quiz in a while but I’m in the mood. Here goes. Let’s see who’s paying attention.

The ultimate driver for individual stock prices are
A) Really well articulated short stories from websites with over 30 million unique visitors.
B) Really well articulated short stories from websites with over 50 million unique visitors.
C) Really well articulated short stories from websites with over 60 million unique visitors.
D) Earnings.

This is a tough one so take your time and think about it.  Feel free to answer in comments.

Definition: Sell-side= brokerage firms that sell their research.

Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Tesla Stock Had A Great Day Today

For any other day you wouldn’t think the stock being down 1% was such an accomplishment. But following Tesla’s (NASDAQ:TSLA) announcement that they were canceling their go-private plans, down 1% was a very strong performance.

What Are Shorts Expecting?

Shorts were licking their chops pre-market but again came up empty.

One thing I’m personally excited about is one simple thought process. The shorts and bears have been licking their chops for a long time now thinking this is a zero because of all the losses. But the stock has only gone up.

But what’s next? Think for a second. Profits.

After all those losses-stock-up-anyway, we’re going to get profits. What’s going to happen to the stock then? We think the simple logic-math says it’s going to go higher still.

Here’s the complex proprietary formula we came up with.

IF LOSSES = UP THEN PROFITS = AT LEAST UP

Not so hard, right?

And Musk’s Friday night blog comments said,

“…and we now need to show that we can be sustainably profitable. With all the progress we’ve made on Model 3, we’re positioned to do this, and that’s what the team and I are going to be putting all of our efforts toward.”

Nobody read that? Shorts? Bears? Anybody?

They are “positioned to do this.” What’s this? To be “sustainably profitable” based on the “progress we’ve made.” They are not one-quarter profitable. They are positioned to be sustainably profitable based on where they are right now.

So remember; losses = up stock then profits = at least up stock = rocket ship?

The stock’s action today being down only 1% on confirmation of no transaction was great action. Action, watching what the stock does versus what you would have expected, was amazing today.

The stock action today was saying many many investors are relieved that they get to share in the upside. We had said Musk wanted to keep that upside for himself by going private. In the end he felt bad but also didn’t understand the complicated web of taking a stock back from the public.

Conclusion

The simple fact that Musk wanted to go private meant that he saw incredible value in his company and wanted to lever that for himself. Investors smell that. Bears are too bearish and emotional and can’t see that going profitable is something huge. How long can they hold on as this earnings rocket ship takes off.

Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Tesla: Seriously, Musk, Who Cares About The Shorts!

Congrats to Elon Musk and Tesla shareholders for the late Friday decision to stay public. We’ve mentioned our $1000+ 12 month price target. That’s based on using a 50X PE on 2019 earnings numbers considering Tesla starts going profitable in Q3 and/or Q4.

It sounded like this whole going-private idea was somewhat emotionally charged to avoid the shorts.

Who cares about the shorts, though!

Who Cares About The Shorts

We love shorts.  When we find a company and a story we love, it’s such gravy to know that there’s a huge short interest. Those are the players that are going to help send our loved stocks up into the stratosphere.

We’ve had plenty of them and it is so much more fun when there are huge shorts against us (ask subscribers).

Shorts Are Pent Up Stock Buying Demand

Seriously, Mr. Musk, the shorts are going to be your best friends. You want the stock to go up, right? We want the stock to go up.

How do you get stocks to go up, you need buyers.

Just like you have a backlog of orders for Model 3 and that gives you some comfort, you have a huge backlog of stock buyers in those shorts.

You should be loving the shorts knowing you have so much pent up buying demand.

We love the shorts.

All those bears and shorts are going to have to give-in as long as you simply (come close to) deliver what you set out too.

Who cares about the shorts? Seriously, stop calling them, chiding them, playing with them, acknowledging them. WHO CARES!

How about this: You deliver Model 3s, S&X, Y, Z, L, M, N, O, P and let them push the stock up as you deliver on all your targets. You say nothing about shorts and lose no sleep about one short. Just deliver.

The shorts have been a distraction pushing you to think about going private. The shorts are going to be your stock’s best friends.

Our best calls are stocks we love with a huge short interest. It’s an amazing thing to watch them have to cover as your earnings numbers come to fruition.

Forget about the shorts.

S&P 500, Here We Come

After you print successive profitable quarters and you are in the running to be an S&P candidate, don’t worry all the major institutions are also going to need a serious position in your stock. And, again, the shorts are going to be your best friend, helping the stock jump as these massive investors need to own giant size in Tesla.

Ignore the shorts!

Conclusion

Ignore the shorts. Don’t pay them any attention, time or energy. They are a great company’s best friend. They are your stock buyers in backlog.

Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Trade War: No News Isn’t Necessarily Good News

The US and China met the last two days to discuss trade. We’d love it if we heard of an imminent joint press conference. Maybe we’d hear some good news.

But so far we haven’t heard such news.

The Tell

Uncharacteristically, President Trump didn’t expect much to come out of this meeting. When Trump has been confident ahead of a meeting he usually comes away with something.

Not expecting much tells you Trump may have used this meeting for posturing which implies we also shouldn’t expect much.

More Pressure To Come?

Our guess is Trump will use the findings of this meeting to further hard-press China.

China’s stock market and economy have been struggling ever since The US applied pressure. Trump probably feels he has the upper hand.

We wouldn’t guess much comes out of this meeting and, if anything, harder US pressure can soon follows. That pressure would likely further risk China’s economy and financial markets and could be a bad news day for US markets.

Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated Aug 23 4:40 EDT PM, grammar.

Our $1000+ Tesla Target Was Way Too Low

Really we have a Tesla (NASDAQ:TSLA) 2019 stock price target of $1,343 so when we heard Ark Invest’s $4,000 target we thought we must be just way too low.

Gross Margins Jumping

If you backed into the numbers for Q2 you saw S&X gross margins jumped to 37% or so, up 1100 basis points from Q1. Bears made up stories why that’s bad, right?

As Model 3 gross margins go to 15-20% this year and 25-30% next year (all stated by Tesla on the Q1 and Q2 earnings calls) you can get much higher earnings. (free trial: Full model)

And you can start believing Tesla on their targets because those S&X gross margins were the real deal. It’s happening.

Yes some of it’s on the come but S&X gross margins were too big.

Earnings Inflection Of The Century 

We do simple trajectory analysis to see where the numbers are going. We’ve been doing it for 25 years. Tesla’s story is about to hit serious earnings inflection. There aren’t that many companies doing what Tesla’s about to do with this earnings inflection. We’re looking for them and there are not that many out there. And earnings are the primary driver for individual stock price performance.

Bears Way Too Bearish

I can’t believe how bearish everybody is. I think everybody’s so stuck in the mud being bearish, emotional and negative that they can’t honestly look at that Q2 S&X gross margin jump which tells you, uh oh, this is happening. Sorry shorts.

$420 For A Song

$420 is taking Tesla for a song. It’s way too cheap. I hope they don’t get away with it.

Would you give Tesla a 50 PE for earning our $26.87 in 2019? If so you get a $1,343 stock price. The sell-side’s under $3.00 for next year. Way off. No wonder Musk’s trying to nab this one on the cheap. Everyone’s missing it.

So yes, $1,000 in 1 year and Ark’s $4,000 in 10 years. That would be a 40% return a year. Not bad, right? But Musk wants much more of that upside to himself. Can you blame him?

You Think We’re Nuts

Is Ark nuts for their $4,000 target? No. Reuters ranks us for our estimates. We earned 4/5 stars. We don’t pull this stuff out of thin air. Unless they jack up operating expenditures Tesla has a real shot of blowing away the Street estimates. Isn’t that the type of stuff we’re all looking for?

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Tesla Technicals Confirm Deal In The Works?

tesla stock
Source

We said yesterday that a Tesla stock close above $300 was bullish. We got it.

Thursday we told subscribers we thought we’d get below $300. We got it.

This morning we told subscribers that we’re “very bullish on that strong close. It was reported that Morgan Stanley pulled their coverage of Tesla. That’s bullish for a potential nearer term announcement of funding finally secured.”

We recommended to subscribers to buy shares on the open given the apparent nearer term deal.

Add Morgan Stanley’s going quiet on Tesla to Goldman’s pulling of coverage last week.

The negative flow of funding not-so secured is turning more positive with major investment houses pulling it together.

We’d guess CEO Elon Musk is staring down this huge earnings inflection he’s expecting knowing the stock’s worth way more than $420. He’d love to lever some other assets and keep that upside (he’s tirelessly working for) to himself.

We have a target of well over $1000 based on our 2019 EPS numbers.

As said before, we hope a deal doesn’t go through because we think there’s way more upside than $420. But $420 from here would be a nice move too, no complaints.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated Aug 21, 2018 1:14 PM EDT

Tesla: $280 Big Support

Tesla stock
Source

We told subscribers before Friday’s open on Tesla “the stock can drift below $300 to $280.”  There is major support at $280 as you can see in the chart to the left.

Today’s low hit into the $280s.

We wrote to subscribers last week, “I would be patient before adding aggressively. We need bad news to clear before we can. I’d rather buy higher on good news than buying lower without clarity because it can keep going lower without clarity.”

We went on to say, “We love the earnings inflection story but have to be cognizant of the headwinds. The bears are in charge right now with the news flow. The stock’s been holding up but I think it’s a drift lower until clarity on a few issues.”

We’d love to see the stock close above $300 for confirmation of some support.

Any news would be good news.

Scrap Go-Private?

CEO, Elon Musk does not sound like he’s giving up on going private. Funding has not been lined up though.

If they scrap the go private deal it would probably hit the stock but we’d guess the low would find itself around there. Scrapping the go-private deal would be, we believe, the best for shareholders because we have a $1000+ 12-month target price based on the earnings inflection that’s apparently starting this quarter.

Musk himself said to the New York Times that $420 was code for smoking something. That price is not high, it’s way too low.

That’s why if the private transaction is scrapped, we think ultimately it can boost the stock by removing that unnecessary $420 cap.

And remember, the stock was racing there after earnings. Had “Funding secured” not been tweeted we may have been there already.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated Aug 20, 2018 11:00 EDT AM

Tech Stocks: What’s Hitting Semis?

smh semi stocks
Source

Semiconductor stocks have been weak of late after a recent Morgan Stanley downgrade and some negative data-points.

While the stock market is close to all-time highs the semiconductor chart (NYSEARCA:SMH) is struggling.

We pointed out semiconductor technicals being weak in early July and they have continued to under-perform.

Weak Action Last Week

While the rest of the stock market was going up on expected US-China trade negotiations, semiconductor stocks continued to get hit. Semiconductor stocks would be among the biggest beneficiaries to a trade truce. Seeing them fall is a negative action sign and needs to be noted.

Samsung Push-Outs, NAND and DRAM

Samsung pushing out equipment orders in NAND and DRAM have caused semi-equipment companies to plan for down sequential revenues in Q3.  Investors remember past cycles where that has spelled disaster.

We don’t think this is disaster this time. But with NAND pricing coming down we’ve been cautious on semi-equipment companies for some time to subscribers.

Samsung, though likely pushed out DRAM orders not because of falling prices but because of the difficulty in transitioning to the next technology node. That can ultimately bode well for DRAM suppliers as industry supply growth could fall below expectations supporting pricing.

DRAM spot pricing has also reported to come down. That can weigh on stocks until news reports otherwise. Companies like Micron (NASDAQ:MU) have been outpacing the spot market pricing but they don’t report earnings for another month to offset claims of spot price erosion.

As for NAND, Apple iPhone units being below expectations this year may have helped weigh on NAND prices. If Apple (NASDAQ:AAPL) can nail this next iPhone launch that can add some support to NAND prices.

Typical Seasonal Tech Stock Weakness

Seasonally this period of time has been difficult for tech stocks pretty much through September. Reports coming now report on the summer lull. The results of the Q3 ramp ahead of holiday don’t get reported until October which typically can benefit tech stocks.

Conclusion

The big hit is in semiconductors but there are many individual stories and non-semis that can look through the semi-equipment concerns. We’d also expect select semiconductor stocks to catch some strength later this year. But Morgan Stanley’s call came in a news air-pocket for ultimate impact. We don’t get any potential counter news flow until the broker conference circuit kicks off in September or the next round of earnings reports.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated August 20, 2018, 6:09 PM EDT

Tesla’s Potential Outcomes

Tesla's potential outcomes

Unfortunately Elon Musk’s “funding secured” comment last week was not as secure as previously hoped.

Clean Up

Now the board has selected a special committee which, for one protects Tesla (NASDAQ:TSLA) from any more Musk tweets about going private. The Tesla press release today said, “no Going Private Transaction will be consummated without the approval of the special committee.” That protects the company from future tweets.

It looks like today’s company release poses as clean up to avoid this situation getting any worse as a legal liability.

$420 Too Cheap

Our hope is that there is no deal. $420 is peanuts compared to our price target of nicely over $1000.  The Street’s at $2.89 for 2019 earnings per share. We’re now at over $20.00 per share after going form GAAP to non-GAAP to align with the Street estimates who are all at non-GAAP.

Not As Secured

After seeing Elon Musk’s blog post yesterday it appeared his funding was not as secured as he originally stated. We wrote in chat yesterday morning there was risk to the shares.

Will Other Investors Allow $420

There are now many potential buyers named; a new one each day. But this only springing last week on Board members, a decision process could take time. $420 seems incredibly low especially if it forces out non-accredited investors. We’d guess the board is looking into that so to avoid any further legal risks.

If there are final bidders agreed by Musk and the special committee then you have to wonder if other investors or private equity people looked through the Tesla numbers. Did they notice the jump in gross margins in Q2? Did they run the math what that means for Q3. If they did we’d think they can get EPS numbers closer to our $20.00+ than the Street’s $2.00+ for next year.

Did they do the math? We think they did and who isn’t interested in capturing that differential. We’d guess that’s the driving force in Musk’s desire to go private, not the shorts. We’d guess the 10X EPS upside that’s around the corner is why he’s so antsy to take this company back at a 20% premium. Can that happen? Being a public stock, a public market, we’d guess others come in.

But Can Activists Do Anything?

But can activists really do anything?

$420 is way too cheap but could get done anyway. Musk managed to get Solar City approved that time without a special committee of the board. This time Tesla was more careful to elect such a committee to show more objectivity in this important going private decision.

Musk has proven to be able to sway his board and we’d guess he can sway this special committee.

If funds are finally secured and the board agrees then it comes down to a shareholders vote.

Tesla has a super-majority rule needing 66% of the shareholders approval to pass major changes. Between Musk and those close to him he may hold 25-26%. To pass a vote he’d need another 41%. He can probably do it seeing that he had 85% of outside shareholders approve Solar City.

Those invested with Musk believe in him. Those on his board also believe in him. He can probably manage to pull this off.

There is still room to say that the price is too cheap and other profit minded activist investors can try to come in and swing the vote.  If that were to happy you could get a bidding up of shares as activist investors would need to buy up shares to enhance their voting position.

Takes Time?

As this go private decision process likely can take time we’d guess the stock can be weak. The longer it takes the more investors can lose patience. Expect more short stories about issues with the “Funding secured” comment which can drag the stock.

Conclusion

We hope in the end this earnings story plays out.

I would guess $420 is too low. Hopefully any snap back from a drop would mean some investors see a way to achieve more than that $420.

Looking For Earnings Home Runs: 
Join By Locking In A Lower Rate Before They Go Up Tomorrow

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated August 19, 2018, 4:46 PM EDT, spelling

Tesla: Musk’s Ability To Raise Funds Is Suddenly In Question?

Elon Musk had among his most famous tweets on August 7th saying, “Am considering taking Tesla private at $420. Funding secured.”

Now the media, bears, shorts and even some bullish investors, and even the SEC are questioning whether that last statement, “Funding secured” was true.

Wait a minute, wait a minute.  Before this going-private chatter was ever on the table was there ever a question that one of Musk’s unique traits was to snap a finger and raise capital?  Hasn’t that been at the center of getting this loss making, cash burning business to where it is today?

Musk knows how to raise funds, right? That’s one of the perks in investing alongside Musk.

So suddenly everybody questions Musk if he says “Funding secured”? Suddenly he lost that special knack to raise tons of capital? Does that make any sense?

And Now With Profits, “Funding secured” Is In Question?

Even worse to that thought process, Musk had no problem raising oodles of cash while burning tons of it, just on his vision and progress.

But now, oh so sweet earnings and cash flow are a quarter away based on the company’s guide.

Model S&X may have had gross margins jump from Q1 to Q2 1100 basis points. Did anybody notice? You can back into the math based on the data they gave in the earnings reports.

And Model 3 gross margins are expected to jump from +1%-or-so to 15%-25% over the next two quarters. Tesla said operating expenses don’t build that much.

If you do the math you have the company swinging to profit and cash flow in Q3. (Model available for subscribers)

Let’s Think Logically

Before I ask you, put aside all the loud media stories and the volatile stock, watching the tick-by-tick on a fancy CNBC chart to get your heart beating.

Let’s think logically.

Go with me here and answer honestly.

If Musk could raise oodles of cash while burning money, do you think he has the ability to raise cash when they are about to swing to one of the biggest earnings inflections ever in history in Q3? Answer honestly (We saved you room in comments to answer.)

Risk Arbs’ Dream

This should be a risk-arb’s dream putting it together.

The CEO who’s known to raise cash like water said “Funding secured.”

As a risk-arb you also know that this is as heavily shorted and doubted a company that exists. So you know you have a huge spread of disbelief to a CEO who’s proven time and time again the ability to raise cash.

This should be a risk-arb’s dream come true.

You’re A PE Firm, What Valuation Do You Pay?

And you’re a big fund or even a PE firm, what do you want to pay? Would you want to help Musk take Tesla private?

Let’s ponder, what goes through your mind.

We have Tesla, based on the gross margins jumping in Q2 and Q3 going to $18-20.00 per share for 2019. The Street’s at $3.30 up from $2.20. The Street does not believe in the company’s guidance. Or they did not do the trajectory of what that Q3 and Q4 guide means for next year. They should cut and paste some formulas in their spreadsheets to see what 2019 should be. Street’s way too low.

If 2019 jumps that means 2020 should jump as well.  If you have that type of cash to help take Tesla private you probably walked the floor with Musk to see it happening, to beleive.

Let’s say that $18-20 for 2019 goes to $25-30 in 2020. Can you envision $35 in earnings at some point.

Really really, our 2019 of $18 GAAP assumes a $24/share swing in earnings from 2018. Can it swing again another $24 in 2020? It could. That’s what earnings inflections do.

So would you be willing to pay, as a PE firm, $420 for +$19+$24 = $45/share in 2020? Would you be willing to pay under 10X earnings two-three-years out before the Street jams the valuation higher?

Under 10X?

You don’t need to sharpen your pencil to do this math. I think the answer is yes.

I Like Listening To What People Say

There was a small hint on the Q2 earnings call that Musk may have been toying with this private idea in his head. First he apologized to a couple of analysts to get back in their good graces. Now that they are all friends, he can raise capital all over again. “Bonehead, brainless” analyst comments were quickly forgotten.

So when asked, “How do you plan to fund all of this growth without going back to the capital markets to raise funds?”

Musk’s answer, “we will not be raising any equity at any point.”

Sorry but was he asked about equity or raising funds? Funds include debt and equity. His answer? He will not be raising any equity.

He’s done with equity.

Who wants to give away equity when Musk’s brain is pondering a 10X PE on earnings two years out.

Equity, he will “not be raising,” but debt, he may.

That was hinted by his response to the question.

“Funding Secured”

Investors doubt funding is secured as he said on Twitter? How’s Musk’s track record with raising funds? Pretty strong, right?

If you thought that “funding secured” tweet was an attempt at market manipulation, we’d disagree. That tweet had far from the same vigor of his many short teases excited to squeeze the shorts.

That was a tired tweet that we’re looking to get out of media’s bearish spotlight and run a business. That was a tweet I’m tired and I want to just run this company now that it’s about to throw off oodles of cash. That was a tweet saying, why do I need to expose myself to all this beating when I have something so special that’s about to take over autos and throw off a high return. I don’t have to deal with this anymore now that I don’t need the funds.

And so those sleepless tired fingers eked out that tweet so he could get the ball rolling and put an end to the media grilling and start raking in the cash.

Conclusion

I believe “Funding” has been “secured” because I believe what Musk said and I believe he has the track record to back it up. I believe he has the desire to take this company back after bulging-eyes are staring down one of the biggest earnings inflection stories in history.

Blame it on the shorts, but I think he’s thinking with his wallet.

Risk-arbs, I think you have an amazing opportunity.

Good luck Musk and everybody.

You can vote if funding’s secured here.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We’re long Tesla.

Updated Aug 10, 2018 4:13 am