Works until it doesn't. Exhibit TSLA.
Piggly Wiggly short squeeze story: https://twitter.com/dollarsanddata/status/135456144478064640...
Back in 1999, people weren't very hot on Amazon.
https://www.thestreet.com/opinion/net-stock-horror-stories-r...
Which other automaker does that?
Edit: Having said that, I bought them long ago at their IPO price and sold long ago when they were around 300 pre-splits. The current valuation is indeed a little risky.
1) still has a lot of scaling to get through before they reach anything close to the sales volume of their competition. Elon talks a lot about scaling but Tesla is still microscopic compared to other manufacturers. The business operations of a much larger company will present challenges in communication, structure, quality assurance, legal liabilities in various jurisdictions, not to mention the struggle of sourcing battery components. Tesla scaling is not as easy as spinning up additional Kubernetes pods.
2) The competition WILL electrify. Tesla is not likely to have more than 6 models in the coming years yet they will compete with hundreds of models from different companies that cater to different niches. Any company that offers an electric vehicle with physical buttons instead of a touchscreen has my attention.
3) Tesla workers will unionize and/or mature away from the company. I grew up around Detroit and witnessed a lot of labor dynamics with the UAW. Assuming Tesla succeeds in preventing a union the workers will eventually cash out their stock and leave for better offers at other automotive companies or spin off their services into tier automotive groups. Why write software for Tesla robots when the robot company will hire you to write software for all auto companies?
Also, they're an energy company too, which means at least some of their speculative valuation is in energy, which is a totally different market.
Really, it's priced higher because people like the brand, even if it's run by someone easily distracted who used shareholder money to bail out his cousin's solar business who goes around making 420 tweets, and that's when he's not calling people pedophiles. Oh, and their hubris kills people.
Killing people comes with manufacturing automobiles. Takata airbags and other "cost cutting" disasters, selling cars that can go 300+ km/h which can't be legally driven at that speed anywhere except race tracks and German autobahns, making safety features such as seat belts, side mirrors, traction control etc. optional until the government regulators have had enough deaths and mandate it...
Eventually, of course, if a security keeps only going up, this mantra will become true. The point is that sometimes, a bet that seems like a sure thing will blow up spectacularly. And that not everyone who takes such a bet is obviously wrong.
Let me ask this.
How in the world can an 'analyst' know more about tech than the people that work all their lives in bleeding edge research and technology?
They don't. They don't know more than Jim Keller whose primary task was development of Zen architecture at AMD - which traded at $5 before he joined and until after he was done.
Why do I mention Jim Keller? Because a certain class of people can not only turn around a company, but whole industries even if only due to being famous and drawing unknown talents.
In the case of TSLA; Andrej Karpathy leads the AI division.
My argument is that 'analysts' know nothing of tech and they are in no position to act as the judges.
How much did you need to know about tech to realize that wasn't going to happen?
Sure 'end of next year' may be impossible, but doing it at some point is not necessarily impossible given certain conditions.
Nothing to do with targets, everything to do with values. And a company is more than what it produces, it is also the patents they own and the brains they wield.
PS: I do research in ML.
A valuation of 20 times revenue - and thousands of times earnings - is not justified by saying "a company is more than what it produces".
Edit: put otherwise, how does your comment relate to the fact that Tesla was trading at 5-10% of the current price in 2019? Aren't the patents and brains the same? Why are Tesla's patents and brains worth now almost as much as those of Apple or Microsoft?
"At an altitude of approximately 45 km (24 nautical miles), the boosters separate from the orbiter/external tank, descend on parachutes, and land in the Atlantic Ocean. ... They are recovered by ships, returned to land, and refurbished for reuse."
You say short sellers are using fundamentals as an ‘excuse’ to short stocks ‘they don’t like’. If not from careful analysis of the business, where should the opinions come from?
Even if you took it for granted that GPU-powered deep learning was the next big thing, it wasn't obvious that NVIDIA would be the dominant player. CUDA made GPGPU programming easy at the time, but any other manufacturer could have released something better. It just didn't play out that way.
Alexnet was 2012 by the way. Shortly after Nvidia stock tanked!
Many analysts do. Some don't. They all tend to cover several names, and each name has some analysts who are more influential than others. The influential ones aren't exclusively found at prestigious investment banks, either. One of the most influential analysts for AAPL, Dan Ives, works at Wedbush.
Technology experts are often clueless to a fault and don't have some kind of "third eye" for business, any more than business experts have a "third eye" for technology.
It's also a mistake to think that just because a person is familiar with one technology, he/she understands the demand for that technology -- let alone other, weakly related technologies.
> 'Fundamentals' and all that is a bs excuse used to scapegoat driving stocks they or their friends don't like to the ground.
I agree with this in the case of GME and AMC, but in other situations fundamental analysis can help a person to understand valuations. It seems like BS until you actually find yourself carrying risk and trying to figure out how much a stock should be worth.
Fundamentals shouldn't play much of a role for valuing companies that are at risk of default or bankruptcy, because the stock prices the long-term EV of a binary outcome: either the equity value approaches zero or it doesn't. People who think they know what GME stock is worth, but haven't sold any shares short, are just pontificating and they should either put their money where their mouths are or sit on the sidelines and watch with fascination like the rest of us.