The technology sector is on the verge of full tears during the COVID-19 epidemic this year, with the Nasdaq joint growing by more than 40% in 2020. Of course, after this miraculous race and during the recession, there may be one or two market darlings. The edge of the pullback or something worse. As we move into the second half of the year, investors should remember the words of Ben Graham, teacher of Vern Run Buffett: “Soon the market is a voting machine, but in the long run it is a weighing machine.”
In light of that, investors should be very careful about the following three stocks that I don’t think are heavy enough to justify their current valuation.
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Tesla
On May 1, Tesla (Nasdaq: TSLA) CEO Elon Musk tweeted, “Tesla share price is too high emo.” It’s just logical that the stock has tripled since then, right? And oh, by the way, the company has been comfortable on its balance sheet late last quarter. Despite more billion dollars, people filed to sell 5 5 billion worth of shares to raise more money.
There are a lot of noisy Tesla bears, but I don’t have to be one of them. I am really impressed with the company under Elon Musk and its implementation. However, the stock is up nearly 500% year-over-year, and it looks like this last step has to do with the company’s August 11 stock split announcement rather than any kind of fundamental reasons. Stock splits that do not add any value to the company, but increase the number of shares and decrease the share price by the same amount. Some may suspect that a lower share price, which ranges from about 25 500 to 25 2500, could attract more retail investors to the stock. But now with more brokeline brokerages offering to buy fractional shares, I’m not sure the stock split will be that effective – and in any case, the stock split doesn’t affect the intrinsic value of any company.
Now that the stock is split, investors should focus on what Tesla should do to justify its more than $ 400 billion market capitalization. In the past year, Tesla has made આવક 25 billion in revenue and net revenue alone of $ 376 million, but that profit was 1 1 billion in regulatory credit.
Image source: Tesla.
Obviously, investors believe that Tesla will move forward to dominate the electric vehicle era of injury. But think about this: the leading automaker by volume is today Volkswagen (OTC: VLKA.Y)Is, which sold 11 million cars last year. Its market cap is only billion 1 billion – one-fifth of Tesla’s!
Tesla’s average selling price (ASP) last quarter was about $ 52,271, excluding regulatory credit. As Tesla offers more and more convenience in the mass market with its Model 3 and Model Y vehicles, its ASP should trend down. If – and that’s a big “if” – Tesla could eventually sell as many cars as Volkswagen for ,000 45,000 per unit, it would at some point generate about 500 500 billion in revenue. But most car companies have only single-digit margins. If Tesla affects the mass market, it will likely earn only a 6% net margin, with a net income of about 30 30 billion.
At 400 400 billion, which is already 13-14 times the revenue, the leading car companies Volkswagen and its equivalent Toyota (NYSE: TM) Trade today.
VWAGY AG PARTING MARGIN (Quarterly) data by vicharts
The only problem? Tesla will deliver only 500,000 vehicles this year. To make that much money, you have to invest 20 times more, and it takes a lot of capital. Tesla is not like a software company that can grow a lot without a lot of extra investment. To get the above numbers, Tesla will have to create new plants and run them in full volume. It will require more debt or shareholder dilution over a period of 10 years or more.
In addition, Toyota, Volkswagen, EVs coming from both sides have an aggressive attack. General Motors, And every mature car company on earth. In addition, new Chinese EV start-ups are included, including Neo And Li Auto Toe, Made a big splash in a short time.
Basically, Tesla shareholders are assuming that the company will become the world’s largest in industry-leading margins. Should the company slide all over the place in the next few years, this could be a big sell-off after the epic run.
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Draftkings
Shares of daily fantasy games and online gambling company Draftkings (Nasdaq: DKNG) Has almost quadrupled since April. That’s when the company went public through a reverse merger, which is a way to go public without an IPO. The stock has only been rising, as retail investors are excited about the possibility of more states legalizing game betting in the near future. In addition, the stock of Draftkings received news that Basketball Hall of Famer Michael Jordan would join the company as a special advisor, although he would not be involved in daily management. For its constructive input, Jordan will receive little stock as compensation.
But now that Draftkings’ stock has nearly quadrupled, investors should be cautious. The company recently provided a guidance of થી 500 million to 5 540 million in revenue this year, assuming all professional sports come back this fall, except for college led football. Revenue will remain impressive at 22% to 37% even in a year plagued by epidemics. However, the company is still bleeding cash and suffering huge losses, and the stock is now trading at a market capitalization of more than 14 14 billion (approximately 28 times the 2020 sales estimate), giving the market prices in all sorts of good news.
When the Draftkings were defeated by U.S. While online gaming has certainly benefited as a pure play, it is by no means without competition. The company will have to argue with the choice of the fundraising parent Flutter Entertainment. Brick and mortar casino operators are also entering the game; Pen gaming, For example, in early 2020 the digital sports site took a large stake in Barstol Sports and the brand will use its brand for online gaming. This year has also seen an internet business operator IAC / Interactive Take a 12% stake in MGM Resorts, Which is a sports online gambling platform owned by BTGMM. I’m not sure if the recognition of the name Draftkings, this is any kind of pimple coming up for a piece of pie against the big brands.
Aside from adequate competition and apparently few barriers to entry, the Draftkings will also have to argue with regulation. It is not that the whole country will open online gambling. Nineteen states are now alive, and four more have passed the law. But 12 populous states, such as California and Florida, have recently rejected online gambling bills. The market will not grow as fast as the whole thinks. In addition, I can certainly see a scenario in which online gambling companies face more regulatory scrutiny or higher taxes, especially for major heading risks related to gambling problems during the economic downturn.
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Twilio
I know I know. Twilio (NYSE: TWLO) A flower is a favorite. I’ve also written favorably on the stock before – it was at a time when Twilio was trading at less than half its current price. At a current market cap of 38 38 billion, the company is trading at 26 times sales. There are other software-as-a-service companies that trade at similarly high valuations, but most of them have a higher gross margin than Twilio, logging only 52.2% of the gross margin in the last quarter. Some sas peers have maintained or accelerated their growth during an epidemic, e.g. Zoom video Or Shopife.
While Twilio recorded 46% biological growth in the last quarter, a slight decline from 48% in the first quarter, and management led the way in the direction of only 36% and 38% growth in the next quarter. The company’s total margins actually declined during the year during the last quarter, from 54.5% in 2019 to 52.2% in 2020.
I was expecting better from Twilio as the company’s Bread & Butter, a potential business to reach customers through digital messaging, is heard. Given the reduction in revenue and gross margin pressure I wonder if there may be some competitive headwinds, or if the address is less than what is provided by market management. In any case, the results for me do not justify the stock’s 178% year of appreciation to date.
Management may also be aware of this. Shortly after its second-quarter earnings release, Tulio sold about 25 1.25 billion in stock near its current price, despite already having more than 1. 1.9 billion in cash on its balance sheet.
Like Tesla, Twilio’s competitive risks can be underestimated, and I’m not sure the company can really hope to see margin investors down the road. Even with enough cash on the balance sheet to manage to sell shares at these prices, I would be wary of buying.
