A Slight Case of Overvaluation
Do you think [Tesla] is slightly over valued?
— Lee S., Great Stuff reader.
First, thank you Lee for your question and your readership. Your email gives me an excuse to sidestep the market today. And I’m kinda tired of talking about the Fed and the economy … and all the ramifications therein.
What else is there to say, honestly?
Anyhoo, Tesla Inc. (Nasdaq: [TSLA]). Is it overvalued? Yes. I believe so. And more than just slightly.
Why? Literally dozens of reasons.
The stock’s price-to-earnings (P/E) ratio of 1,290 is the least of it. Seriously, what’s up with that valuation? I get that Wall Street prices stocks on a forward-looking basis, but in what world or timeline would Tesla’s annual net income rise that high anytime soon?
Now, I can argue P/E ratios and valuation until I’m blue in the face and still be wrong when it comes to Tesla’s rally. John Maynard Keynes wasn’t just whistling “Dixie” when he said that the market can remain irrational longer than you can remain solvent.
And that’s the key takeaway on Tesla right here … right now … in this very market. Traditional valuation took a back seat when the Federal Reserve hopped up Wall Street on unlimited soma.
I know, I said I wouldn’t talk about the market and the Fed. But this issue affects all stocks — especially tech stocks such as Tesla.
For its part, Wall Street went on a bullish tear with Tesla. Bears are converting to bulls, and bulls are becoming even more bullish. And, proving that valuation really, truly doesn’t matter anymore — RBC Capital just lifted its price target on TSLA.
OK, OK … RBC lifted its target from $170 to $290 and said Tesla was “fundamentally overvalued.” So, there are at least some analysts on Wall Street not doped on the Fed’s wares.
A fat lot of good it will do them, as institutional investors are coming aboard in droves — big names such as Baillie Gifford, Capital Group, Vanguard and BlackRock, according to Bloomberg data. And that list will only get longer once TSLA is added to the S&P 500 Index.
“I think there is a misperception on retail investors and institutions [on Tesla]. I have talked to more institutional investors the last six months on Tesla than the last six years because the story has changed fundamentally, and profitability wise,” Wedbush Managing Director Dan Ives recently told Yahoo Finance.
Finally, let’s not completely discount retail investors when it comes to Tesla.
I mean, how else does an overvalued company go through a five-for-one stock split, then immediately turn around to sell $5 billion in new stock and not tank by a double-digit percentage?
Essentially, TSLA shares trade like a commodity and not like a stock based on a company’s earnings potential or revenue.
So, yes. Lee S. Tesla is slightly overvalued. But it doesn’t matter. At least right now. Not with asset prices out of control across the board on Wall Street. As long as investors keep screaming “Give me more TSLA!” the stock will continue to rise.
As a self-proclaimed Tesla bull, I’m all for this rally. As a market realist, however, I’m very, very unnerved.
But, if you’re like Lee and have to ask if Tesla is overvalued … maybe the risk outweighs the reward.
In that case, you need to go ahead and click here. Like now. (Go ahead, it won’t bite.)
When you click here, you’ll learn that Tesla isn’t the electric vehicle (EV) world’s end-all be-all. There is another.
Even if you don’t bite on Tesla’s insane rally, you can’t miss out on the EV market. It’s really hoppin’, as the kids say. (I don’t think the kids say that, Mr. Great Stuff.)
So, instead of diving into Tesla’s plaid rally, click here for everything you need to get in on the EV market now.
Good: Another Kodak Moment
I’ll be upfront here: Today’s Eastman Kodak Co. (NYSE: KODK) rally is only “Good” if, for some unknown reason, you haven’t already sold the shares.
Maybe you got in following news that the company would receive a $765 million loan to manufacture critical pharmaceutical ingredients.
Maybe you held on to KODK shares after word got out that Kodak management traded the news before it was public knowledge, hoping that the insider trading scandal would just go away.
Well … if that was you, today’s your lucky day! It’s finally time to get out and recoup some of your losses.
KODK surged more than 25% today after hedge fund D.E. Shaw disclosed a 5.2% stake in the company.
Shaw’s stake initially boosted confidence in Kodak, but that confidence faded faster than a one-legged man in a butt kicking competition. For instance, while KODK opened today more than 40% higher, those gains were nearly cut in half by the close.
But! But! The loan! What about the loan?!
You mean the $765 million government loan?
I’ll let White House Trade Adviser Peter Navarro take that one: “Kodak, I mean … you can’t fix stupid.”
If you got stuck in KODK after all the hype, take today’s gift rally and get out.
Better: Walmart Plus Ultra
Those crazy brick-and-mortar retailers over at Walmart Inc. (NYSE: WMT) have really done it. They’ve finally done it.
Walmart+ will launch on September 15. And it’ll go head-to-head with Amazon.com Inc.’s (Nasdaq: AMZN) Prime.
It’s like watching a Godzilla movie where two mega beasts battle each other over who gets to destroy humanity first. (Where’s Deku when you need him?)
According to Walmart, Walmart+ will cost $98 per year (or $12.95 per month) and includes a 15-day free trial period.
- Unlimited free delivery at in-store prices.
- Same-day delivery on some 160,000 items and groceries.
- “Scan & Go” shopping with the Walmart app, with payment via Walmart Pay.
- Fuel discounts at Walmart, Murphy USA and Murphy Express fuel stations.
Walmart will also consider a wave of additional benefits down the road, including fueling at Sam’s Club stations.
It’s weird, though, that we’re in 2020 amid a stay-at-home revolution … and in-store shopping is listed as a benefit.
Furthermore, Walmart+ isn’t quite as “plus ultra” as Amazon Prime. There’s no video streaming service, cloud storage option, music service … the list goes on.
Still, in the ever-competitive retail world, Walmart has risen to new heights with Walmart+ to take on Amazon.
I’ll give the final word on investing in Walmart to Morningstar Analyst Zain Akbari: “With unrivaled scale, prodigious procurement strength, a strong brand, and a growing e-commerce platform, we believe Walmart is the only American retailer that can compete comprehensively with Amazon’s retail offering.”
Best: To the Moon!
If TSLA’s lackluster price action today rustled your jimmies, you’re still in luck for some heartbeat-pumping, adrenaline-boosted rallying online.
Zoom Video Communications Inc. (Nasdaq: ZM) came out of the pandemic earnings gate with boundless enthusiasm.
- Earnings: $0.92 per share, versus expectations for $0.45 per share.
- Revenue: $663.5 million, versus expectations for $500.5 million.
Compared to last year, Zoom’s income skyrocketed about 3,282% on the quarter. It’s no shocker here. We’ve been building up Zoom as one of the few standout pandemic benefactors.
Relax a minute, Mr. Great Stuff — there’s too much good news here, and I’m not used to it.
Before your pulse goes BAM zoom POW to the moon, can I interest you in some guidance? Zoom also kicked analysts’ full-year expectations to the curb.
For the full 2021 fiscal year — 2021? How long was I locked down? — Zoom expects per-share earnings to land between $2.40 and $2.47, when analysts only predicted $1.30 per share.
Revenue? Yeah, that’s another raise. Zoom spitballed between $2.37 billion and $2.39 billion for revenue, blowing away the $1.81 billion consensus.
Will Zoom continue to be the stay-at-home market’s Holy Grail? Will we still be locked down next month … or the month after … or the month after? Why am I asking you when we’ll find out together?
In today’s Quote of the Week, we’re running to the hills.
Run for your life!
I see you, Maiden fans … but we’re going in a different direction today. There’s gold in them thar hills!
Just last week, I told you to get your pirate hat on and start sailing toward the seas of golden bounties.
Running … sailing … where are we headed, Mr. Great Stuff?
To India, we go! Hunting down the glints of golden opportunity, Indiana Jones style.
From the Wall Street Journal, here’s what’s up:
Now, this is where we draw a line in the sand: Here, we’re talking about the retail demand for gold. On the other hand, investment demand for gold (funds, trusts, bullion, vaults in Gringotts, etc.) are different.
In slow times — i.e., not the brimstone-burning blowout that is 2020 — retail gold can affect investment gold. Pre-pandemic, we might’ve seen a global impact from India’s demand drop. But right now, there’s enough investment demand on a worldwide scale that blips in retail demand will largely go unnoticed.
There’s plenty of investment demand outside of India to make up for retail demand drops in the country. In other words, the bullish case for gold’s rally lives on.
Now, if you’re looking for fortune and glory, kid, fortune and glory, we have your way in on the gold game, so don’t go pillaging from Nana’s jewelry box just yet.
We have top men working on a rare event that’s unfolding in the gold markets that only happens once every 20 to 30 years — one that could pay you up to nine times more than bullion, coins or ETFs.
So choose, but choose wisely. Click here to get the details of this rare gold investment.
Great Stuff: Golden Slumbers
Once there was a way to get back homeward. Once there was a way to get back home.
Write to us, dear reader, do not cry! And I will send you a snarky reply.
Golden slumbers fill your eyes! Smiles await you when you … write to GreatStuffToday@banyanhill.com. Smiles await us, at least, when we read your Reader Feedback each week. And we’re counting on you to be a part of this week’s edition of rabble-rousing chitchatting emailing fun.
So why not drop us a line? We’ll get the ball rolling for you:
- Does Walmart have what it takes to out-Amazon the ‘Zon?
- Have you ever invested in gold? (No, Cash4Gold doesn’t count.)
- Are you chasing Tesla? And how about that whole “overvaluation” thing?
- What sectors would you like to see more coverage on in Great Stuff?
- Do you have a favorite Grateful Dead era, and why is it ’72 to ’73?
Once again, that’s GreatStuffToday@banyanhill.com for anything you’d like to share our way. We’d love to spotlight your email soon!
Until next time, stay Great!
Editor, Great Stuff