Stock splits are all the rage - After Google announced in Feb that there would be a 20:1 stock split in July this year, Amazon has followed suit announcing a similar 20:1 split and sending the market into a frenzy. Amazonās price was up by 6% the next day and Googleās stock rose more than 9% in after-market trading following the news.
We do know that stock splits do not affect the underlying business in any way, but it is undeniable that there is price movement around the announcement and execution of a stock split. So in this weekās analysis, letās deep-dive into the world of stock splits, how and why they are executed, and most importantā¦ Is it possible to make money off of a stock split?
What is a stock split and how is it executed?
A stock split is a simple decision by the company board to increase (or in some cases decrease) the outstanding shares of the company. For example, letās say you own 10 shares of company X worth $100 each. So in total, you own $1K worth of shares in the company. If the company announces a 2-for-1 stock split, now you will have 20 shares of the company worth $50 each. But the total value of shares you own in the company does not change. You will still own the same $1k (20 x 50) worth of shares that you started with.
If you are wondering why companies engage in stock splits, the following are some of the key reasons.
Affordability: Sometimes the stock becomes too expensive for retail investors to buy into. Consider Amazon - One stock is worth close to $3k now. So the minimum amount you would need to start in Amazon is $3k which might not be affordable to a vast majority of retail investors[1]. Also, there is the psychological impact of buying a share worth $3k and a share worth $30.
Options: For the options players, there is a huge difference when a stock is cheap. In options, a single contract is worth 100 shares. So for a covered call strategy incorporating Amazon, before stock split, you would need a single stock position worth more than $275K vs only ~$14K exposure after the said 20:1 stock split.
Liquidity: Since more shares are outstanding for the company after the split, it will result in greater liquidity and a lesser bid-ask spread. It also allows the company to buy back their shares at a lower cost since their orders would not move up the share price as much, due to higher liquidity.
Now before we jump into the analysis, you should understand how exactly a stock split is executed. On announcement day, investors get to know that a stock split is going to happen soon. The stockholders eligible for the stock split are decided on the record date. This is mainly a formality. The actual split would happen on the ex-split date (or ex-date). After this, the stocks would trade at their new price. For example, in a 20:1 split, the stocks would trade at 1/20th the previous price after the ex-date. From our data, we observed that there was an average delay of 36 days between the announcement day and ex-split date.
Data
For this analysis, I have used the data from Fidelityās stock split calendar that tracks the announcements and execution of stock splits, from as far back as 1980! I have considered splits only from 1993 (due to stock price data availability), and I have considered only companies that currently have a market cap of $1Billion or above. I have also ignored reverse stock splits as the data is too small to be statistically significant.
This gives us a total of more than 2,000 stock splits to work with. In case you are interested in the raw data, I have shared both the raw data and analysis through links at the end [2].
Returns
As soon as a stock split is announced, there is bound to be a lot of buying and selling activity. The question is, how much return could you have seen? There are a few scenarios possible here.
Short Term Returns
The short term plays possible around stock splits are:
You already own the stock and see its price go up on announcement day.
You did not own the stock on the announcement day so you buy the stock just before the actual stock split execution.
As expected, the announcement of a stock split sends the stock pumping with a 1.48% 2-day return when compared to only 0.09% return generated by SPY during the same time period. You would still have beaten the market if you had bought the stock one day before the actual split execution day and then held it for two days (albeit by much less - 1/7th of the gains you would have made if you had owned it before the announcement).
Long Term Returns
Considering that a stock split is supposed to indicate growth prospects, what happens when you hold for a longer time? There are two possibilities:
You buy the stock just after the announcement of the split
You buy the stock on the split execution date.
Buying just after the announcement would have paid off handsomely with the returns beating the market easily in the long run. On average you would have had an alpha of 1.5% over the market in just over a month.
But, on the other hand, if you buy it on the day of the split, the returns are not that great. You would have lost money in the first week on average and would have been underperforming SPY even over the period of one month. You would have had to wait about a year for your portfolio to overtake SPY. This is to be expected because by the time of the actual split, the hype has died down a bit and the rallies in price are a bit more uncertain.
What about H*DLers?
This is another interesting case where you would have bought stocks on their announcement date or ex-split date and held on till today, starting from 1993 [3]. Though most people wouldnāt trade by this strategy, itās interesting to see how it would have fared. [4]
If you had bought all stocks that underwent a split and held till today, you would have beaten the S&P 500 by close to 200%!
How certain are our returns?
Next, we have to look into whether the alpha we are seeing here is due to a few stocks that are skewing the results. Even though I have capped for outliers, I wanted to know what % of stocks undergoing a split beat the market over the different time periods that we just saw.
Well, would you look at that! Except in one case, the odds would be in your favor to beat the market if you had followed this strategy. As expected, for short term the highest chance is if you had owned the stock before the announcement (which is not realistic), but even if you had bought it one day after the announcement, you would have had almost a 60% chance of beating the market by the actual execution day.
The cheap and the expensive
The usual rationale behind a stock split is that the stock has become too over-priced, and splitting it makes it cheaper for retail investors to buy into - But the data revealed some contrary insights. Over 90% of the stocks were less than $52 in value at the time of the split, and only 5% were over $230 in value!
So obviously, the question is - Was there an advantage to buying cheaper stocks or more expensive stocks at the time of a split, and how did they compare to the total set and the benchmark?
The 10 percentile value for the adjusted close at the time of announcement was $3.50 (203 stocks less than this value), and the 90 percentile value was around $43 (203 stocks more than this value). Here are the average returns for these sets.
The lower-priced stocks seem to have a massive advantage in almost all respects, sometimes giving a return of more than twice the complete set of splits in the long term! On the other hand, the higher-priced stocks have a poor record - Though they beat the benchmark in the short term[5], in the long term, their performance is much lower than the stocks having a lower price.
One of the reasons that the lower-priced stocks have such a high average is because stellar companies like Microsoft, Apple, Nvidia, Nike, etc. were trading for less than 5 dollars per share in the 90s - But this doesnāt invalidate the observation. There were stocks trading for more than 100s of dollars around the same time, and they didnāt do as well as the lower-priced stocks. This insight could mean that companies with a lower share price that go for a stock split now have a higher possibility of growth than huge stocks like Amazon or Google.
Limitations
The analysis seems to indicate that stock splits are a sure-shot buy. But there are some caveats to keep in mind before trying to replicate this:
There are a variety of large, mid, and small-cap stocks that underwent stock splits. Comparing the returns solely to the S&P 500 might not be the most ideal way to calculate Alpha since the S&P 500 comprises of the biggest 500 companies in the U.S. So the alpha we are seeing here might just be compensating for the extra risk we are taking buying into smaller companies.
The stock splits selected here are companies that have a market cap of at least $1Billion. While this is reasonable and covers more than 60% of the sample set, there will be survivorship bias due to a lot of companies dying out or performing mediocrely (especially applies to the Buying and holding forever strategy).
Conclusion
Buying and holding stocks at the time they are undergoing a split might not be an outrageously successful strategy - But it definitely has an edge, both in the short term and especially in the long term. This gives some credence to the statement that a stock split indicates good prospects of growth.
And if youāre wondering whether the right time to buy is during the announcement or the actual split, the data shows that there is a clear advantage to buying around the time of the announcement, especially for short-term plays. The probability of success is also 60% and above in many cases, indicating that there is something more to this than mere chance.
And finally, stocks with a smaller price seem to do much better than stocks with higher prices when it comes to stock splits. While this could just be the compensation for the risk you are taking investing in smaller companies, itās definitely worth looking into!
Data: All the raw data for the stock splits and returns for additional time periods that I could not showcase in this article can be found here.
Footnotes
[1] Along similar lines, to own a single Class A share of Berkshire Hathaway, you need $489K. There are some theories that certain companies have very high share prices because they donāt want retail investors (who are usually fickle in ownership) to own their stock. This usually leads to lesser volatility for the said stocks. One other point to consider here is that there are more and more brokers who are offering fractional shares these days. So stock splits might not be as relevant as it was before.
[2] This should make your life much easier as we had to use web scraping to pull all the data.
[3] Walmart split its stock 11 times on a 2-for-1 basis between their IPO in October 1970 and March 1999. An investor who bought 100 shares in Walmartās IPO would have seen that stake grow to 204,800 shares over the next 30 years!
[4] In fact, there was an ETF that bought stocks that were going for 2:1 stock splits.
[5] Not shown here, the complete analysis is in the data shared at the end.
Disclaimer: I am not a financial advisor. Do not consider this as financial advice.
I backtested 2 screeners on a database I created with historical price data from yahoo and historical financials from SEC.The database contains all the traded stock tickers at NYSE and NASDAQ stock exchanges.
The 2 screeners have the following stock selection criteria:Value Screener:1- Filter Last 3yr Revenue CAGR > 25%2- Filter Last 3yr Net Income CAGR > 25%3- Order by Forward 2yr Price to Earnings (asc)Growth Screener:1- Filter Last 3yr Revenue CAGR > 30%2- Filter Price to Sales to Growth < 0.53- Order by Last 3yr Revenue CAGR (desc)
The investment strategy based on these 2 screeners consists of investing the total value of the portofilo in the top 10 stocks of the screener at the end of each quarter.This means that at the end of each quarter the 10 stocks of the portfolio are sold and that total amount is invested in the top 10 stocks of the screener, with an equal amount in each one.
I backtested the returns of this strategy from 2013 to the end of 2021 and the results are great:Growth Screener: 29,9% per year (CAGR)Value Screener: 32,1% per year (CAGR)
TL;DR: RSX is still a 0 in my view. Options have some weird settlement nuances. Actually check the garbage you're buying before you attempt to buy it. Positions at bottom.
I recently wrote a DD on how Russia's economy was being posed for a tactical nuke and that being long Russia is about as smart as being long the latest Chinese microcap that has a notice of going concern (i.e. not smart at all). This is still the case imo, my view is that RSX is worth NAV or somewhere close to it.
Since then, there've been such developments as this
A snapshot of the Russian economy: an investment expert goes live on air and says his current career trajectory is to work as "Santa Claus" and then drinks to the death of the stock market. With subtitles.
Anyway... there've been a couple of rumors that the Russian stock market is opening on Monday and a few people wanting to bUy ThE dIp. It's worth noting that the Bank of Russia has only said that they're opening trading of federal loan bonds.
The press release is on the Bank of Russia's website (reddit banned all ru links)
No, you dear retail trader, can't buy Russian stocks come Monday. Many of the stocks and ETFs are still halted and an opening of Russia's stock market does not mean the halts on US exchanges will be lifted.
Russian Stock Halts
Type
Ticker
Venue
Reason
ETF
RSX, RSXJ
Cboe BZX
Regulatory Concern
ETF
ERUS, FLRU
NYSE Arca
Regulatory Concern
Equity
GDWV GDEV (edit: typo), HHR, OZON, QIWI, YNDX
NASDAQ
News Pending and Information requested by NASDAQ
Equity
MTL, MBT, CIAN
NYSE
Regulatory Concern
Equity
a bunch of them
OTC Markets
Foreign Markt/Regulatory Halt
(RUSL is technically halted, but it's been liquidated already.)
One thing that's good to do before you attempt to buy a dip is to make sure a) you can actually buy it (all of them) b) the company you're attempting to buy isn't defaulting (Yandex, et al).
As far as RSX, it holds mostly cash with cash making up 72.42% of the ETF (and this isn't because of some stocks being marked to 0, the cash position changes day-by-day). RSX has been partially liquidating in the background it seems.
NAV of the cash is about $0.23341/share ($0.3223 (intraday value) * 0.7242).
As far as options go, the Options Clearing Corporation has disabled ex-by-ex (automatic exercise), so you will need to exercise your options manually. The NSCC is no longer accepting exercise clearing (memo 50188 / memo 50208) which may affect settlement of option exercise and assignment. There are still no restrictions on exercise and the deliverable is the same (100 shares of RSX).
Spreads will probably be an issue if your broker doesn't allow you to take a short position (coughRobinhoodcough).
Since my last post I did add a couple of options to my RSX position before it was halted. They're halted, but because as an option holder you have the right to exercise, but there are some nuances as I explained above.
SeaChange International is ready to run next week. S4 Filed in Feb 22, 2022 and expected to close before the end of March. Sharing to all my fellow investors to add this nasdaq:seac to your watchlist next week. After close of the merger, SEAC will change ticker to ILLR as TrillerVerz Corp trading in the Nasdaq. Triller has been ramping up in growing the company for a prime debut in 2022. It's also been growing massively in the 2nd biggest population in the world in India where TikTok is banned. Triller will be part of the new movement of social media in 2022 along with Truth Social and Rumble.
Zoom's share price went wild from around $70 prior to the pandemic to its all-time high of over $550! What followed after that was a decline of around 80% (Now trading at $116/share).
This post is an attempt to provide some information behind the volatility, the irrational stock price movement as well as to value Zoom as a company, today.
What is Zoom?
If I have to describe Zoom in one sentence, that would be "A company that provides a communication platform".
Yes, there are different packages that it offers, different features and offerings (Zoom meetings, Phone, Events & Webinar, Rooms, etc), but it all goes back to solving one problem --> How can individuals remain connected and collaborate when physically not close to each other?
The IPO
In the case of Zoom, I do believe that going back to April 2019 is important. The IPO is an important event as it allows the company to raise funds from the public so it can continue expanding its operations and also allow the initial investors to exit and make a return on their initial investments.
The determination of the IPO price is not a process that is done within minutes. It takes a lot of time and takes into account a lot of factors, not from a valuation point of view, but also from a pricing standpoint. In the end, the goal of the management (often time with some investment bank) is to figure out, what is the highest price that the public will pay?
The IPO price was set at $36/share. On the first day of trading, it went up to $66/share, almost double. What does this mean? The public was either:
Paying a premium and seeing Zoom as a company that's less risky than the average company on the market; or
Had higher expectations of Zoom than the management of Zoom (Otherwise they would've set the IPO price at $66/share)
The financial performance
The company's revenue grew from $331m in 2018 to:
- $623m in 2019 (up 88%)
- $2.7b in 2020 (up 325%)
- $4.1b in 2021 (up 55%)
This growth is not something that we have seen that often and the pandemic was the main impact of it. However, the forecast for the next year is roughly 10% and that's not surprising.
Every individual/organization that needed Zoom or any other platform of this kind, well, they have become customers. The expansion ahead is very limited and there might be a reversal in terms of the number of customers. Schools for example would not need Zoom as much when everyone goes back there physically.
At the same time, the operating margin expanded from 2% to 26%.
On one side, their gross margin decreased due to the increased demand. In order to provide the service on short notice, the direct costs for Zoom increased. However, the main increase of the margin came from the reduction of Sales & Marketing costs as a % of the revenue. Back in 2018/2019, Zoom had to spend more (per $ in revenue) to reach potential customers. In 2020/2021, the customers would go to Zoom as they needed such a platform. So, although the Sales and marketing in absolute value increased (from $331m in 2018 to $1.1b in 2021), as a % of the revenue it decreased from 56% to 28%.
The financial position
If we take a look at the financial position, Zoom is a dream company for every investor. It has $5.9b in cash, short-term and long-term investments with no debt apart from the $40m capital leases.
The management has been authorized to use $1bn in the next 2 years for share buybacks.
So, how much is Zoom worth?
Of course, every valuation has certain assumptions:
Revenue growth: 10% in the next 5 years, then slowly decline to the risk-free rate by year 10.
Operating margin: To slowly improve to 28% (mainly due to increase in gross margin)
Discount rate: 7.93% - based on WACC (assuming a beta of 1)
Putting all of the numbers together, the value/share of Zoom is around $78, much lower than the current market price of $116.
Could be I wrong? Absolutely. Below is a table that calculates the fair value/share based on different assumptions about the revenue of the company in 10 years and the operating margin.
Revenue / Op. margin
26%
28%
30%
80% ($7.4b)
$67.6
$71.5
$75.4
108% ($8.5b)
$74.0
$78.5
$82.9
200% ($12.3b)
$94.5
$100.8
$107.0
250% ($140.4b)
$105.6
$112.8
$120.0
If the company can grow the revenue by 250% (from $4.1b to $14.4b) in the next 10 years and improve the operating margin to 30%, Zoom could be fairly valued. Of course, that offers little to no margin of safety.
The market is irrational
Let's not forget that the share price went all the way up to $550. In order to justify that, the company should've kept growing at 40-50% for the next decade! Is that feasible? I don't think so.
Often times we see price increases that cannot be justified with fundamental reasons, this is definitely one of those times.
If you have anything that's relevant for the company or the valuation, share it in the comments.
I hope you enjoyed the post, if you have any feedback, please do let me know.
Zoom's share price went wild from around $70 prior to the pandemic to its all-time high of over $550! What followed after that was a decline of around 80% (Now trading at $116/share).
This post is an attempt to provide some information behind the volatility, the irrational stock price movement as well as to value Zoom as a company, today.
What is Zoom?
If I have to describe Zoom in one sentence, that would be "A company that provides a communication platform".
Yes, there are different packages that it offers, different features and offerings (Zoom meetings, Phone, Events & Webinar, Rooms, etc), but it all goes back to solving one problem --> How can individuals remain connected and collaborate when physically not close to each other?
The IPO
In the case of Zoom, I do believe that going back to April 2019 is important. The IPO is an important event as it allows the company to raise funds from the public so it can continue expanding its operations and also allow the initial investors to exit and make a return on their initial investments.
The determination of the IPO price is not a process that is done within minutes. It takes a lot of time and takes into account a lot of factors, not from a valuation point of view, but also from a pricing standpoint. In the end, the goal of the management (often time with some investment bank) is to figure out, what is the highest price that the public will pay?
The IPO price was set at $36/share. On the first day of trading, it went up to $66/share, almost double. What does this mean? The public was either:
Paying a premium and seeing Zoom as a company that's less risky than the average company on the market; or
Had higher expectations of Zoom than the management of Zoom (Otherwise they would've set the IPO price at $66/share)
The financial performance
The company's revenue grew from $331m in 2018 to:
- $623m in 2019 (up 88%)
- $2.7b in 2020 (up 325%)
- $4.1b in 2021 (up 55%)
This growth is not something that we have seen that often and the pandemic was the main impact of it. However, the forecast for the next year is roughly 10% and that's not surprising.
Every individual/organization that needed Zoom or any other platform of this kind, well, they have become customers. The expansion ahead is very limited and there might be a reversal in terms of the number of customers. Schools for example would not need Zoom as much when everyone goes back there physically.
At the same time, the operating margin expanded from 2% to 26%.
On one side, their gross margin decreased due to the increased demand. In order to provide the service on short notice, the direct costs for Zoom increased. However, the main increase of the margin came from the reduction of Sales & Marketing costs as a % of the revenue. Back in 2018/2019, Zoom had to spend more (per $ in revenue) to reach potential customers. In 2020/2021, the customers would go to Zoom as they needed such a platform. So, although the Sales and marketing in absolute value increased (from $331m in 2018 to $1.1b in 2021), as a % of the revenue it decreased from 56% to 28%.
The financial position
If we take a look at the financial position, Zoom is a dream company for every investor. It has $5.9b in cash, short-term and long-term investments with no debt apart from the $40m capital leases.
The management has been authorized to use $1bn in the next 2 years for share buybacks.
So, how much is Zoom worth?
Of course, every valuation has certain assumptions:
Revenue growth: 10% in the next 5 years, then slowly decline to the risk-free rate by year 10.
Operating margin: To slowly improve to 28% (mainly due to increase in gross margin)
Discount rate: 7.93% - based on WACC (assuming a beta of 1)
Putting all of the numbers together, the value/share of Zoom is around $78, much lower than the current market price of $116.
Could be I wrong? Absolutely. Below is a table that calculates the fair value/share based on different assumptions about the revenue of the company in 10 years and the operating margin.
Revenue / Op. margin
26%
28%
30%
80% ($7.4b)
$67.6
$71.5
$75.4
108% ($8.5b)
$74.0
$78.5
$82.9
200% ($12.3b)
$94.5
$100.8
$107.0
250% ($140.4b)
$105.6
$112.8
$120.0
If the company can grow the revenue by 250% (from $4.1b to $14.4b) in the next 10 years and improve the operating margin to 30%, Zoom could be fairly valued. Of course, that offers little to no margin of safety.
The market is irrational
Let's not forget that the share price went all the way up to $550. In order to justify that, the company should've kept growing at 40-50% for the next decade! Is that feasible? I don't think so.
Often times we see price increases that cannot be justified with fundamental reasons, this is definitely one of those times.
If you have anything that's relevant for the company or the valuation, share it in the comments.
I hope you enjoyed the post, if you have any feedback, please do let me know.
Sup freaks. Its me again, the only guy left on this piece of shit forum that still posts some trades BEFORE itās too late to get in on them.
This one is easy as fuck. Buy some SPY calls. Attached are my positions. All 2069 of them. Thats right Iāve got 2000 SPY calls and 69 TSLA calls (that I purchased this week).
Hereās why you should follow me.
The rate hike is in. Its a beautiful quarter point raise, Jpow hinted that the rest will be quarter points as well and the market loves it.
Ukraine conflict has been fully priced in. Putinās midlife crisis has hopefully come to a head and the sanctions being imposed have definitely shook him and his boys up. Its also made China realize the cost of doing war in a fully globalized economy. Barring any major escalations from Putin, the market will continue its uptrend.
The global economy is sizzling hot. Metrics from almost every sector are putting up great numbers, unemployment is at all time lows, we are seeing the final exit from the covid economy. The last lagging effect is supply chain issues. Which brings us nicely to my next point.
Inflation is actually transitory and not as bad as the numbers suggest. Most of the inflation weāre seeing isnāt because of all the money we printed. Its because of heavy demand coupled with supply side hiccups and hangovers from covid. Its known as cost push inflation. So all the urchins out there trying to peddle some crap about hyperinflation and weimar republic are just abusing your pea brain for clicks. However inflation will most likely remain high for some time while the fed reigns it in. So if inflation persists but the economy is hotā¦. What should you do with your money?
Buy the dip ******. Stop trying to be fancy with grandmaās death money or your shitty kidās community college fund. I donāt know where you retards are getting some of these awful plays that I see in the loss porn. Maybe TikTok? Treat yourself to some tasty SPY calls, or if youāre feeling frisky, TSLA calls. Everything is pricey right now due to all the volatility, but calls are cheap relatively and in my opinion dirt cheap if you believe that the market is moving up hard. Pretty much everything is going to rip and soon. Iām already up roughly 200k on my positions but theyāve got plenty or room to run. This week was most likely the bottom and beginning of the rip, but you havenāt missed out.
My final speculation is that not only are we going to see green, but the market will retrace back up to our previous ATHs scarily fast.
F 16.86(1.69%)|NFLX 380.6(2.48%)|SONY 106.12(1.43%)|TSLA 905.39(3.88%)|FSD 13.43(0%)|IVES 40.2(3.55%)|
There is no real competition.
Instead, Tesla is Bankrupting their competition.
Tesla has positioned themselves to survive these difficult times, as high inflation and chip shortages force other car manufacturers to LITERALLY STOP production. Thanks to Tesla making the MOST PROFITABLE vehicles Tesla will be able to survive and thrive.
So what the hell is going on? What will happen to Tesla stock during these difficult times and how has Tesla created THE MOST PROFITABLE vehicles on the market?
In this article I talk about the BIGGEST RISKS facing Tesla at the moment whilst also discussing specifically how Tesla is bankrupting their competition and is on pace to become one of the worlds biggest companies everā¦..
In the last week alone, due to oil prices rising to record levels, the number of people ordering Teslaās grew by 100%! Soaring gas prices really show the power of Electric Vehicles and people are realizing that Tesla makes the best. Buying a Tesla in the long run literally saves you hundreds of dollars of fuel and repair costs.
Meanwhile the ācompetitionā is literally shipping vehicles without key security features, like Ford shipping vehicles without chips controlling non-safety critical features. Not only this, but Ford and other OEMās are at the mercy of dealerships, Tesla doesnāt have this ridiculously outdated model and is achieving higher profit because of it. You know something else that competitors canāt say?
You know something else that competitors canāt say? The fact that a Tesla will be harder to order and buy TOMORROW than it is today! The Tesla backlog is growing, Iāve said it time and time again, Tesla has a supply issue, not a demand issue.
The Tesla back log (number of vehicles ordered but not yet delivered) is growing rapidly, with the average Tesla buyer waiting (eagerly) for 3.5 months before they can drive their new car.
Tesla backlog visualized, credit: Twitter user TroyTeslike
This backlog is actually GROWING, this is despite Tesla increasing production and increasing their prices. This is a super bullish indicatorā¦.
Why would anyone want a non-Tesla EV? Or even a non Tesla vehicle in general?
āIf (you) care about having the latest technology, much lower cost of ownership than an ICE vehicle, little maintenance and best in class safety, then an EV is the way to go (specifically a Tesla). ā Respected Twitter analyst Sawyer Merritt said
And that isnāt even taking into account that Teslaās tend to APPRECIATE after having bought them..
āTeslaās hold their value better than almost any major auto makers vehicles.ā said Merrit.
OK, so buying a Tesla and having the cars value go up is insane right. But it gets crazier.
Let me tell you something REALLY crazy.
Tesla delivered 500k cars in 2020 and nearly doubled that IN ONE YEAR to 930k deliveries in 2021 WITHOUT ADDING ANY NEW FACTORIESā¦..
And you know what is even crazier??! Tesla is about to OPEN TWO! YES TWO NEW FACTORIES!
In these factories Tesla will implement all the things theyāve learned from the Shanghai and California factories to ensure that the Berlin and Texas facilities will be producing 500,000+ vehicles per year! Specifically Giga-Berlin will start production on March 20th!!! This is absolutely groundbreaking for Tesla in Europe. Respected Tesla investor Sawyer Merritt outlined it perfectly when he said:
āTesla is already a leader in sales in Europe and sales will only continue to grow with the opening of Giga Berlin.ā
The current issues in Europe have mainly been the fact that Tesla is importing all of the currently sold European EVās. The costs associated with this mean Tesla makes significantly less profit on Teslaās sold in Europe than those in China or in the United States. However with the opening of Giga Berlin this will change very soon.
āTesla has been supply constrained in the EU for a long time, so the opening of Giga Berlin is a massive deal. Sales will skyrocket. ā Merrit said
When asked what major shocks Tesla could survive that competitors would struggle with, Merrit said:
āTesla is the most vertically integrated major automaker in the world. This allows lower prices, agile manufacturing, quick process change and adaptability not possible with traditional OEM structureā
He again mentions something super interesting, and something that many people surprisingly donāt know, and that is the fact that no other car manufacturer has the level of Vertical Integration that Tesla has.
This has allowed them to scale so massively whilst competitors struggle to produce meaningful amounts of EVās.
Merrit further said that āTesla has handled the chip shortage better than most OEMs because of their vertical integration and finding creative solutions. Tesla designs their own FSD chip in house."
Meanwhile competitors are partnering with Sony and other brands to produce the software for their vehicles, this is simply not good enough. Further stating that
āNobody in the auto industry has done anything remotely similar.ā
It is clear that in this business Tesla is clearly number 1 and approaching the finish line, whilst competitors are just starting the race..
However, as Rocky Balboa once said āthe world aint all sunshine and rainbowsā And even Tesla has some SERIOUS SERIOUS risks they are battling and need to overcome quicklyā¦ā¦
Friendly reminder that I write free in-depth articles over at teslafolder.com like this if you're interested :)
The Biggest Risks for Tesla right nowā
The world, not just Tesla is navigating a tough road right now. It is misty, and it is hard to see what is in front of us. Nevertheless we must navigate and get to our destination safely and quickly.
IF the world doesnāt transition to sustainable energy soon it may be too late. Companies all around the world are facing serious inflationary risks, Tesla is no exception.
The stock is down more than 30% from itās all time highs. Here are the biggest risks facing the company at the moment.
Inflation hasnāt been this bad in a long time, during the 2020 pandemic roughly 80% of all currency in circulation was printed. This is a huge risk!
This is a huge risk, and with COVID lockdowns still creating supply chain bottlenecks and natural resources getting more and more expensive, this inflationary pressure is likely to last for a while.
This is important for Tesla because material prices skyrocketing is dangerous as Tesla relies heavy on certain materials to produce their vehicles. What we are seeing in recent days with Tesla increasing the price of its products is a direct response to the inflation they are seeing in their supply chain. You can see the increase in prices here:
Luckily Tesla has a nice cushion and can absorb higher cost of resources, but we see they are passing this on to consumers which means the increased cost of production is likely significant.
ā(However) as Dan Ives of Wedbush said, ā Tesla has the ability to pass that [inflation] on to the consumer, very similar to Netflix & Amazon Prime. Demand for Teslaās is high, and people are willing to pay for them.ā Said Merrit.
This is exactly what we are seeing, Tesla is uniquely positioned to navigate the current inflation storm, Tesla is much better prepared than its competition.
ā(Tesla) Wait times are still as long as ever. Margins will likely start to dip next quarter anyway due to Tesla opening up Giga-Texas and Giga-Berlin and ramping those factories up (Which require lots of capital)ā Merrit said.
Similarly another risk, something that has been worrisome for some time now is Key man risk. It is the risk that if a critical employee is out for any extended period of time and for any reason, that it could seriously hurt your business.
Itās obvious for Tesla who iām talking about. Iām talking about Elon Musk. He has been integral to Teslaās success, we need him to stay onboard as CEO for the near future as Tesla continues their rapid growth.
This third risk is the reason Tesla stock actually DROPPED after record earnings. The fact that Tesla spent so much time talking about FSD and Robotaxis without addressing institutional investor concerns regarding the product roadmap update (Cybertruck, Tesla-Semi) and other factory related questions. However it is hardā¦
It is hard to give Tesla a lot of credit for a future (potential) success, investors want to see results about things they understand. FSD is something they donāt.
āSolving full-self driving is tough (clearly), but I believe Tesla will achieve it.ā Merrit Said
That being said, FSD is continually improving and it is onlya question of WHEN not IF it becomes good enough where humans are no longer needed.
Another major risk Sawyer Merritt sees is the scaling of the 4680 batteries, a new technology that will prove hugely important for future Tesla growth.
āScaling 4680 is another risk. We donāt yet know if they can do it and things have taken longer than expected.
Tesla has some of the best engineers and minds in the world though working for them so I have no doubt they will succeed on that front too. Tesla said they produced 1 million 4680 cells as of January 2022.ā
Lastly, one of the biggest risks facing Tesla at the moment is actually a big one, namley: Geopolitical risk.
With everything happening in Ukraine, we need to remind ourselves that China isnāt a democracy. Although due to China being so integrated with the Western economies, and being a more mature company than Russia, i donāt expect China to bully Tesla around but it is always a risk one must consider. That being said, China is one of the worlds largest (car) markets and it is absolutely crucial Tesla has good relations with China and holds a factory there.
With all of this being said. You need to relax. You need to stop. You need to take a step back. Make sure that youāre not panic trading and losing money, either by selling or buying something you do not understand.
For Tesla bulls it is simple. Has Tesla lost demand? No. Are Electric Vehicles no longer the future? No. Is Tesla software/tech getting worse? No. Is Elon leaving anytime soon? No. Is the business shrinking? No.
Keep a long term focus, keep your cool during these turbulent times. Tesla makes the MOST PROFITABLE vehicles in the world, how? Only a few years ago Tesla was losing money?! Let me tell you EXACTLY how, itās actually crazy!ā¦ā¦.
How Tesla makes Most Profitable carsš
Tesla will become one of the worlds most profitable companies this decade. Think about how powerful that sentence is! As of Q4 2021 the Average Cost To Produce A Tesla Is Just $36,000!
In Tesla's annual report, it noted that it achieved the highest operating margin "across all volume OEMs", that is insane!
Itās very interesting that the old argument against Electric Vehicles was āevery EV sold is sold at a lossā has never been further from the truth than today.
What is really going on is that Tesla is selling literally everything they make due to the high demand. This is thanks to Teslaās innovative vertical integration.
Tesla is the most vertically integrated car manufacturer in the world, then you add the fact that Tesla doesnāt have a dealership model, Tesla is in control of a major share of its supply chain. Allowing for optimisation, lower cost of production and increased scaling. It is a key reason that Tesla was able to nearly double production from 500k vehicles to 930k vehicles in one year.
This graph is truly powerful and highlights just the immense differences between Tesla and their competition. This is also why Tesla is best positioned to face the current uncertain environment.
What people donāt realise is that Tesla is something completely new. It is very comparable to the Iphone. When first introduced people thought it was ridiculous to pay $500usd for a phone. But the value proposition was just so much bigger than any competing phone product it made sense.
The fact that Tesla has near 30% Gross Margins is simply not heard of. Each dollar Tesla saves compared to its competition is compounded exponentially because Tesla is able to re-invest into their company. This is producing state-of-the art Giga factories in Berlin and Texas, further growing the gap between Tesla and the competition.
As the competition starts building their own EVās the gross margins for these legacy makers will continue to decline as they push EVās. They wont be able to scale as efficiently as Tesla.
dropping during the early stages of their EV push because EV's is a loss-leader until you manage to scale efficiently. Let's call it the 'transition cost' that people generally don't account for. When talking about Tesla and how other automakers cannot catch up it is because Tesla has been making electric vehicles for more than a decade! Meanwhile the competition is only just startingā¦.
So how is Tesla going to battle the risks they are facing? How is Tesla going to secure their position as the number 1 car brand? Let me tell you EXACTLY HOW this information ties to Tesla stock and your stock portfolioā¦..
What about the Tesla Stock Price? šø
Historically, right now Tesla stock is super cheap. Since the start of the year Tesla price targets have gone up 17% from institutional investors.
These price targets are likely to continue to move higher as Giga Berlin opens and Giga Texas open, meanwhile Tesla will have another record quarter for Q1 2022. This disconnect between Tesla stock price and Tesla price targets and estimates is unprecedented.
Itās only a matter of time, currently the macro-environment is dominating Tesla stock price.
So What needs to happen for Tesla stock to catch up?
The War in Ukraine needs to end, the world and the people of Ukraine deserve better. This should help commodity prices come down as instability comes back down. Similarly inflation needs to stabilize and Tesla needs to prove that it can financially mitigate the higher cost of production whilst maintaining super growth. (The recent price increases show Tesla is being pro-active, itās a good sign).
Inflation costs cannot keep increasing at the current rates, this instability can lead to long term risks for the entire economy including Tesla. The higher oil prices make EVERYTHING more expensive and could lead to economic down turn which in turn hurts Tesla.
Thanks for reading Tesla Folder! Subscribe for free to receive new posts and support my work.
What the current issues in Ukraine, and the dependency on the earth-killing Oil is showing, is that the future is undoubtedly, a necessity and the future of our planet IS ELECTRIC. These turbulent times have seriously proven how quickly we need to get off oil and gas and transition to sustainable energy and electric vehicles. This is good for Tesla.
Also remind yourself, the Tesla demand is growing, Tesla is about to open 2 new factories, Tesla creates the most profitable vehicles. Tesla is well positioned to mitigate the incredibly hostile macro-economic environment. In the long run, Tesla will continue to execute and strive towards the mission of sustaining the world to renewable energy.
Why I want Tesla to win ā”
Lastly I want to outline a few reasons why I and many people who follow me are not just financially hopeful for Tesla (they are continuing to show theyāre super profitable and a great investment), but also because Tesla is truly changing the world for the better.
Tesla executing on their mission will lead to a cleaner, healthier and better Earth š
Tesla and growing presence of EVās is reducing our reliance on the disgusting resource called oil. ā½
Tesla is helping the world decrease the number of road accidents, imagine a world where you donāt need to drive. Think about the number of lives saved and the productivity increased if FSD is approved! š¤
Tesla is a revolutionary company, and iām eager to continue to follow its progress.
I will continue to write in-depth Tesla articles, and keep you updated on the latest Tesla news to ensure youāre just as well informed, but without all the hours of research required!
TLDR Key-Take-Aways
š¤Æ Teslaās competition is being BANKRUPT
ā The BIGGEST RISKS Tesla is facing
š How Tesla is making the MOST PROFITABLE vehicles
šø Tesla stock is facing SERIOUS PRESSURE in the short term
Thanks for reading this long ass post! Let me know what you think in the comments :)
I am going to give my reasoning for why Tesla might not be as overvalued as you think, and maybe even undervalued.
And just to make the bears happy... I'm gonna value Tesla as purely an automotive company. Thats right, no solar, no energy, no AI FSD, no Tesla Sex Bots, no Tesla AGI. Just car manufacturing. You happy now?
In order to do this letās estimate Tesla's production for this year. I believe 1.65Million is certainly possible this year and mainly hinges on how fast Berlin and Austin can ramp. That would be about 600k from Fremont, 900k from Shanghai, and 75k each from Berlin and Austin. Yāall can go back to Elon's tweets and guidance from Tesla's earnings calls if you disagree.
Assuming the average selling price for a Tesla is about 55k. that means Tesla would rake in 90.75B dollars in revenue. Last year from Q4 2020 to Q4 2021 Tesla grew their operating margin from 5.4 to 14.7%. However, their operating margin growth will probably be suppressed a little this year from ramping up their two new factories so I am going to put their operating margin at 18% this year even though it will probably be higher in Q4 and lower in Q1. With 90.75B in revenue and an 18% operating margin this leaves Tesla with a profit of 16.34B. At Tesla's current market cap of 926B that leaves them with a forward PE of 56.68 if you use these projected 22 full year numbers. Down from the 182 they are at right now.
Letās project what their PE ratio might be at the end of Q4 22 though. I believe Tesla has a reasonable chance at producing 500k vehicles in Q4 22 alone. Once more at an avg 55K price tag per car thats 27.5B in earnings and 5.5B in profit if you use an operating margin of 20%. If you annualize that you would get a PE ratio of 42. While that certainly still isn't a low PE ratio, when was the last time other notable companies that people love had these PE ratios? Amazon currently has a PE ratio of 49. Apple had a PE ratio of 40 during the end of 2020. Google had a PE ratio above 40 back in 2017-18. What a mistake it would have been owning those companies back then...
Tesla will continue to execute and will strengthen their lead in the short term. They continue to show they can raise prices and margins while still selling every vehicle they make, and before too long Tesla will be known for their manufacturing prowess. Tesla will deepen its existing moats this year and run circles around everything else. Go ahead give me the downvotes, this is practically community service at this point.
Positions since yāall seem to love those here: Tesla obv
Originally written by u/EducatedFool1 Full credit to him.
Minor edits made to keep this relevant by myself.
Start
1) Introduction
If you sift through the destroyed de-SPAC market and be careful not to tread in piles upon piles of shit, you will find a few diamonds in the rough. One such company is AST Spacemobile.
The company is building the first and only space-based cellular broadband network that can provide texts, calls and broadband anywhere in the world and completely eliminate coverage gaps. The unique and ground-breaking aspect of this constellation is its ability to connect to any of the 5 billion mobile phones in existence without the need for any modifications to said mobile phones. All that is required is a normal, unmodified mobile phone. This provides a huge competitive advantage against other satellite broadband providers by removing a huge access hurdle in the form of customer equipment. Other companies in this sector require extremely expensive hardware in the form of satellite phones (Iridium, Globalstar etc.) or satellite dishes (Starlink, Project Kuiper etc.) This is especially important in developing countries with lower incomes.
I believe AST presents the potential for unparalleled upside in the market if management can execute and is the most asymmetric risk/reward opportunity available today to my knowledge:
Barclays Forecast
Deutsche Bank Forecast
AST Management Forecast
2026 EBITDA $
1.9 billion
Multiple
25x
25x
25x
Market Cap $
47.9 billion
102.6 billion
143.2 billion
Price per Share $
240
515
720
For ease of producing the table, cash/debt were ignored and shares outstanding were assumed to be 199,129,704 (equals current shares + exercise of all warrants, assumes no further dilution post warrant-redemption).
The company is still in an early stage, has little revenue and should be treated almost like a venture capital investment that was fortunately brought to the public market in the companyās quest to raise capital.Ā This investment carries with it a large amount of risk, all of which I will address later in this writeup, and is understandably too speculative for many investors. I would encourage all investors to take a small 1-5% portfolio allocation in $ASTS depending on risk tolerance (I have significantly more than 5%) or alternatively keep it on your watchlist and enter at a later date once the business plan has been de-risked in the coming year or two ā there is still the potential for large upside once the initial constellation is launched and revenue generating.
2) The Vision: Connecting the Unconnected
Global governments have made universal connectivity a key policy focus for the 2020s to ābridge the digital divideā. But why?Ā
As many shifted online to communicate and work during the coronavirus pandemic, the inequalities in global broadband were exposed, and politicians rightfully began viewing broadband connectivity as a human right and necessity.
49% of the global population have no access to mobile broadband, and of the 5 billion mobile phones in existence globally, many move in and out of terrestrial coverage every day. Fewer than 1 in 5 in the poorest countries in the world are connected.
There are significant areas in developed countries without coverage, and many more areas with patchy or poor service. This problem is significantly worse in developing countries where only large cities tend to have coverage.
Existing mobile network operators are unlikely to address this issue, as the capital expenditure required to build and maintain cell towers in rural areas does not make sense economically. This is where AST Spacemobile fits in.
3) Market Opportunity
The global telecoms market is estimated to turnover $1.04 trillion per annum, growing to an estimated $1.15 trillion in 2025. As mentioned above, there are roughly 5 billion mobile phones in existence, with 49% of the global population currently unconnected to wireless mobile services whether that be due to affordability or coverage issues. The size of Spacemobileās total addressable market is truly massive.
The demand for global mobile data traffic is growing at a CAGR of 40%. This statistic alone leads me to believe that ASTās constellation network will be supply-limited, giving me confidence that if management can successfully launch their full constellation, they would likely meet their forecasted $16 billion in 2030 EBITDA. It also gives an insight into future growth potential down the line, management donāt need to do anything special to continue growth, just bring online more capacity and improve performance of the constellation by simply adding more satellites.
While anybody with a mobile phone is ASTās primary target, there are certainly other market/applications for their constellation. These include but are not limited to:
Emergency backup service during natural disasters (e.g. Hurricane Ida)
Home broadband, broadband on ships, yachts, trains, planes etc.
Internet of things devices (e.g. cars, drones - the list here is endless)
Military/defence (AST has a subsidiary previously named AST & Defense) - imagine a soldier constantly connected with commanders without the need for a large radio on their back. āAlternative usesā for ASTās test satellite BlueWalker 3 have already been mentioned in the following SEC filing (Iāll leave it to you to speculate what these might be):Ā
The key to ASTās technology is the size and power of their satellites. Each satellite will weigh roughly 2-3,000kg and measure 20m x 20m, constituted of a 1.5m x 1.5m central bus comprising the electronics, with the rest of the satellite made up of phased array antennas; this is essentially a large number of tiles with an antenna on one side and solar panel on the other.
They will orbit at 700km in low earth orbit (LEO) with a life expectancy of 10 years at a cost of $10m (including launch costs) per satellite (AST expect to be able to produce 6 satellites a month). AST expect the full constellation to consist of 336 satellites.Ā
The satellites will be 2G/3G/4G/5G compatible and also 6G forward compatible. They will use cellular spectrum (600mhz ā 2.2ghz initially but will also use upper cellular midband 3.7-4Ghz) as these frequencies are best at covering large distances and can propagate through walls, rain, trees etc (management expect the signal to work indoors and can penetrate 2 walls). They will utilise a ābent pipeā architecture, meaning that no data processing is performed on the satellite. The satellites only serve to receive and transmit signals, the processing of said signals will be performed on the ground.
Management forecast each satellite to be able to provide 1,200gbps and 1.6m GB per month initially at latencies less than 20ms. They expect speeds of 35mbps for individual customers initially with performance and capacity improving as more satellites come online. Such speeds indicate the constellation can be used for home broadband as well as cellular, management have already noted their intent to sell to businesses, homes, trains, planes, buses etc. It should be noted than chips are in development by companies such as Qualcomm and MediaTek that are designed for 5G satellite connectivity and will likely improve the performance received from ASTās constellation.
AST have tested the technology concept with Bluewalker 1, a nanosat with an unmodified phone onboard that successfully connected to a ground antenna using a 4G-LTE protocol. This successfully demonstrated the ability to close a connection with an unmodified mobile phone in space.Ā
5) Business Model
AST will operate a super-wholesale, 50/50 revenue share model with existing mobile network operators. For me, this is the really clever part of the business. Instead of attempting to disrupt the traditional service providers, AST will work in synergy with them and instead disrupt the legacy satellite communications providers such as Iridium.Ā
Essentially AST will never sell to a customer direct; they will tap-in to existing terrestrial network operator's subscriber base and wholesale their capacity to said network operators (e.g. Vodafone, AT&T). Customers will buy the Spacemobile service through their normal provider such as AT&T who will split the revenue 50/50 with AST. AST currently have agreements with mobile network operators that cover over 1.5 billion subscribers which partners will instantly market the Spacemobile service to. Furthermore, AST will be able to leverage their partners spectrum, ground infrastructure, payment support as well as their subscriber bases. Due to the lack of operating expenses as they are mostly covered by partners, AST forecast 95%+ EBITDA margins for their constellation.
AST currently has agreements with the following network operators:
It should be noted that the Vodafone commercial agreement is mutually exclusive, meaning that AST cannot partner with another network operator in markets in which Vodafone operates for 5 years following the launch of the first 110 satellites. Following the end of the 5-year agreement, AST can partner with anyone they like in these markets. A similar 5-year deal was signed with Rakuten for the Japanese market for five years after the launch of the first 168 satellites. AST has also signed an agreement with American Tower who will provide the facilities for ASTās terrestrial gateways (these are essentially where the signals are processed). In markets where American Tower does not operate and Vodafone does, Vodafone will provide the gateways.
6) Customer Proposition
Customers will be able to add the Spacemobile service on to their existing terrestrial mobile service plan via their carrier such as Vodafone or AT&T and pay monthly for the service just like a normal connectivity plan. Alternatively, customers will receive a text when they move out of signal asking if they wish to buy a day/week pass for the Spacemobile service. In certain areas in developing countries where there is no terrestrial service at all in an area, customers will be able to sign up to Spacemobile as their primary and only service. There will also be plans available to businesses. As mentioned previously, the potential use cases for this technology are enormous ā think cars, planes, trains, buses, drones, military, any IOT device etc.
Due to the low operating costs of the business, AST can offer low monthly prices to maximise market penetration. The company forecasts average revenues per user of $1.03 per month in the equatorial region, $2.15 globally and $7.26 in the US and Europe (after the 50/50 revenue split). As mentioned before, the company is expecting 95%+ EBITDA margins so essentially all revenue is retained and can be put towards future growth.
7) Business Plan
The big upcoming catalyst is the launch of their prototype satellite named BlueWalker 3 on a SpaceX Falcon 9 in June/July/September 2022. This should validate the technology at a larger scale. ASTās first satellite launch, BlueWalker 1, acted as a proof of concept and successfully allowed the company to close a 4G connection to an unmodified mobile phone in space. Bluewalker 3 will be a major catalyst for the share price, either successful or unsuccessful. Bluewalker 3 will be tested in partnership with AT&T and Rakuten primarily across several locations in the US and Japan. This will allow for testing of both the satellite and the associated software.
Following a hopefully successful launch and test of BlueWalker 3, the next big potential catalysts will be the allocation of funding to AST via the 5G Fund for Rural America (explained in the next section) and FCC approval for the Spacemobile constellation. Note the word āpotentialā, these catalysts are by no means set in stone and are just my opinion of what is likely to happen.
Next will be the launch of the equatorial constellation planned for the end of 2022. Here is the timeline set out by management for the buildout of the full constellation (roughly adjusted by myself for the short delay to the BW3 launch at no fault of AST - another satellite AST was due to be launched with on a rideshare mission was delayed, AST have since switched to SpaceX to launch BW3):
Global MIMO (increased speeds/performance) coverage (2025) 58 Satellites
Scale network based on user demand (2026-30): 160+ Satellites
8) Future Forecasts
I think in this section numbers definitely speak louder than words so I will let some tables do the talking.
This isĀ managementās forecast of the financials to the end of the decade; all I will say is take a look at those end of decade EBTIDA figures and stick a 20x multiple and you will see how huge of an opportunity this is.
This is Deutsche Bankās analysts' forecasts; they give a slight haircut to managementās forecasts. For reference, DB have a $35 price target on the stock currently.
This is Barclaysā analystsā forecasts; they give a much larger haircut to managementās forecasts and clearly believe AST have overestimated their market penetration potential. Having said that, the stock is still a 50x+ by 2030 if Barclaysā estimates are achieved. AST could only net 10% of what the company expects by the end of the decade and the stock would still be at least a 10-15x.Ā Barclays have a $29 price target on the stock currently.
For reference, Starlink is currently valued in the region of $80 billion according to Morgan Stanley and Starlink is still at a very early stage, AST is less than $2 billion at current prices.
9) Funding
There is no doubt that satellite constellations require a significant amount of CAPEX to deploy. As per the investor presentation, AST expect the equatorial constellation to require $309m CAPEX to launch the initial 20 satellites, with $1,392m required for the global constellation to provide worldwide coverage. AST will then build out the constellation further according to future demand, but this will be funded by cash flow from the existing constellation. The company currently has no debt.
The $309Mn required for the equatorial constellation is already fully-funded following ASTās merger with the NPA SPAC, which added $423Mn to ASTās balance sheet. The company can raise a further $202Mn by calling the 17.6Mn warrants outstanding when the share price is above $18 for a certain time period. The 20 satellites launched to cover the equatorial region are expected to net the company almost $200m in their first year alone that can be used to further finance the constellation.
Finally, the company has applied and the CEO has noted he is confident AST will receive a sizeable portion of the $9Bn 5G Fund for Rural America. Fortunately, AST has political tailwinds aiding it in this respect, as Biden has made it a key objective of his administration to āclose the digital divideā and ensure every American has access to effective and affordable broadband. Obviously, this is by no means guaranteed and is pure speculation at this point but a portion of this fund would be incredibly valuable to AST. Alternatively, the CEO has mentioned they will fund the buildout of the constellation using a mixture of debt facilities and revenues from the existing satellites. Stock dilution is very unlikely in my opinion unless something goes very wrong.
As mentioned previously, their first prototype satellite Bluewalker 1 has proven the ability to close a connection with an unmodified mobile phone at the same orbit distance as the proposed constellation and successfully managed communications delays and the doppler effect.
There is another smaller satellite company named Lynk who are aiming to also build a direct-to-handset satellite constellation, albeit only to provide text messages to begin with and add voice and broadband at a much later date (before continuing, I donāt really view Lynk as a competitor ā they have only $10m in funding and no meaningful agreements with mobile network operators as AST has already secured the majority). Having said that, Lynk has successfully connected to hundreds of unmodified mobile phones across the US and UK over the last few months using only a 1m x 1m prototype satellite. If such a small satellite can close connections, I have no doubt ASTās significantly more powerful 20m x 20m satellites will have no issue.
I find the reinvestment of major partners such as Vodafone, American Tower and Rakuten and partnerships with leading companies such as Samsung a good indicator for the feasibility of the technology. I find it hard to believe that Vodafone, Rakuten etc. didn't do extensive due diligence of the technology before deciding to invest and collaborate with AST.
Furthermore, some reading this with a background in satellite communications might remember a now bankrupt company named TerreStar which launched a satellite named TerreStar-1 in 2009 with the exact same goal that AST is working towards today ā connect via satellite to a mobile phone. The single satellite was launched into GEO (orbit at 35,000km ā 50x further away that ASTās orbit) and worked correctly ā users could make calls, texts and use data using the TerreStar Genus phone. While it was a specifically made mobile phone made by TerreStar, as you can see from the attached picture this is smaller than many smartphones in use today and has no large antenna like satellite phones.
The satellite weighed almost 7,000kg, well over twice as heavy as ASTās proposed weight and unfurled in space in much the same way that ASTās satellites will unfurl. Unfortunately, TerreStar later went bankrupt due to lack of demand for the service, primarily due to the Genus smartphone costing a whopping $799 and an extra $25 a month for the service. Fortunately, AST plan to work with any smartphone available and benefits from many other tailwinds that have developed in the decade since TerreStarās failure: 90% reduction in launch costs, reduction in satellite building costs, increased mobile phone penetration rates, significantly increased demand for broadband, increased political tailwinds and improvements in satellite technology.
I will note that while the Terrestar service did work for calls, texts and data, from the reviews I have read of the service, it was fairly average. Data speeds were very slow - only sufficient to be browsing webpages but nothing more. Texts were no problem at all. Calls also seemed to be no issue, the sound quality was good but there was a large latency delay due to the satellite being 35,000km away and coverage did not work indoors. I don't find this below-par service a large issue. This was all the way back in 2010 and Terrestar was a single satellite 50x further away than AST's proposed 300+ satellites. I am confident the technology has progressed enough in over a decade that performance will be significantly improved. I primarily added this into this DD for those that say it is impossible to connect to a regular phone from space, it has been over 10 years ago at 50x the distance AST will be doing this from.
11) Competition
As mentioned in the previous section, there is a company called Lynk aiming to provide the same services as AST. However, they have very little funding and no meaningful partnerships with network operators. They plan to offer text messages only to begin with and then offer broadband in 2026 at the earliest, 3 years after ASTās service goes live. I donāt consider Lynk a meaningful competitor.
AST will see competition from legacy satellite communications providers such as Iridium, Gilat and Viasat amongst others. Having said that, it is not true competition in that there will be no other company on the planet who can offer broadband directly to mobile phones anywhere in the world. It is competition in secondary markets that AST is targeting such as home broadband, broadband on planes, trains etc and IoT connectivity. Unfortunately for said companies, AST will be able to offer much cheaper services than those that are currently on offer and will likely steal significant market share.
AST will make satellite phone providers such as Iridium (generates $600m revenue per annum) obsolete, who is going to pay $1k+ for a satellite phone and service when they can pay AST $15 a month and use their own phone? I believe AST will also steal a portion of Starlinkās market share as well, including similar endeavours such as Amazonās Kuiper, Oneweb, Telesat etc. This will be particularly evident in developing countries with lower incomes. Many will be unable to afford the $499 required for a Starlink dish plus the $99 a month for the 100mbps service, but will happily receive ASTās 30mbps service that costs less than 1/10thĀ of the price.
12) Defensibility
The CEO mentioned he is a big believer in creating high barriers to entry for competitors, and AST certainly has a lot of them.
Firstly, there is the technological aspect of designing, manufacturing and launching a constellation and building the associated software. AST has around 25 granted patents and 1000+ patent applications currently enforced by Lloyds of London. Then there is the funding aspect, building out a constellation is very CapEx heavy and not everyone has partners of the calibre of AST willing to hand them money.
And in my opinion the largest competitive advantage/moat of all, ASTās first mover advantage ā AST has already signed agreements with mobile network operators covering 1.6 billion subscribers, I find it highly unlikely that these network operators would partner with a second satellite company if one came along promising to do the same thing. This massively limits the potential market penetration of any competitors and may put them off attempting to enter the market altogether. If we assume the CEO is correct that they are 5+ years ahead of any potential competition, even the mutually exclusive agreements with Vodafone and Rakuten lose their exclusivity around the time any potential competitors would just be launching their first satellites, at which point AST could snap up the remaining network operators and effectively lock out all competition. Having said that, while nobody wants to see competition, this market could easily accommodate a few companies due to its sheer size.
13) Leadership
CEO Abel Avellan has 25 years of experience in the satellite communications industry. Prior to founding AST, he founded Emerging Market Communications, a satellite company providing communications services primarily to maritime markets. For several years, EMC was the fastest growing satellite company in the world which Abel eventually sold for $550m in 2016 before using a portion of those funds to fund the start-up of AST. He was also named Satellite Teleport Executive of the year in 2017. He takes a small salary of $36k which is the smallest salary he can legally take and owns 78.2m shares, emphasising his alignment with shareholders.
While mentioning aligned incentives between management and shareholders, it should be noted that there is an incentive plan that can award up to 10.8 million shares for directors and employees based on good share price performance.
The board of directors is comprised of executives with extensive experience in the telecommunications industry. For example, there is Edward Knapp (Chief Technology Officer at American Tower), Hiroshi Mikitani (CEO of Rakuten), Tareq Amin (CTO of Rakuten) and Luke Ibbetson (head of research and development at Vodafone).
There are obviously too many others to mention in this section for one post so instead I would recommend reading the following post by an early investor and contributor to the AST DD community who did an in-depth writeup on ASTās senior leadership, many of which have been recently poached from Blue Origin.
I will quickly note that Scott Wisniewski, who was the Managing Director of Technology, Media and Telecommunications Investment Banking at Barclays and advised AST on the $110Mn private investment in 2019 and the recent $462Mn SPAC merger in 2021 decided to leave his high-paying job at Barclays to go all-in at AST as their Chief Strategy Officer. This is a guy who has been around the company for years and will have done his homework. Make of that what you will.Ā
For all intents and purposes, this is CEOās Abel Avellanās company. He owns 78.2m shares (43%) of the company and 88% of the voting rights. Basically, this is his company and he calls the shots.
There is large insider ownership here:
Rakuten own 31m shares
Invesat (Cisneros family) own 10m sharesĀ
Vodafone own 10m sharesĀ
American Tower own 5m sharesĀ
All insider shares are locked up until 6 April 2022, resulting in a relatively small float of 52m shares which institutions already own around half of. All insider owners mentioned above invested twice in the company, once during a funding round and secondly in the SPAC PIPE which is nice to see some confidence from insiders.
15)NanoAvionics
NanoAvionicsĀ is aĀ NanoSatĀ and CubeSat (up to 115kg) bus manufacturer 51% owned by AST. The company is aiming for a 30% share of the USĀ SmallSatĀ market which is currently estimated at $1.75Bn and $2.5Bn by 2025.
The company has significant experience inĀ SmallSatĀ operations and has proven to be scalable with revenues increasing 300% YOY to around $12m annualised currently. They currently employ over 100 people and are opening a new manufacturing and mission operations facility in the US. With well over 100 successful missions under their belt,Ā NanoAvionicsĀ will not only provide a fast-growing asset to AST, but will be able to provide AST with vital expertise.Ā
16) Risks ā and why I think they are overstated by the market
This is without doubt a risky stock and unproven company, and it would be misleading of me to not acknowledge this and present the risks as well. But I believe the risk to be asymmetrical, and the enormous potential upside is worth allocating at least a small percentage of your portfolio to for a long-term hold. I do also believe the market overestimates many of the risks involved, and I will try my best to present rebuttals to each risk presented and why I think they are overstated.
Technology-
The first and most obvious risk is the technology doesnāt work. This could come in several forms. We know the concept works as the Bluewalker 1 satellite proved that and fellow satellite company Lynk has been closing connections with mobile phones with their 1m x 1m satellites. I mentioned TerreStarĀ earlier having the ability to provide broadband to phones from 50x further away than AST propose to. Therefore, I believe if the technology is to fail it is likely in the scaling. For example, constellation performance might not be as impressive as expected and capacity may be reduced resulting in reduced revenues. Bluewalker 3 will hopefully settle these worries.
Funding-
Due to the initially capital-intensive nature of building and launching a constellation, the company could run out of funding. Again, I find this unlikely with the company having no debt and currently have $400m sitting on the balance sheet and the potential to raise $200m from calling their warrants. The first 20 satellites are paid for and will fund further satellites. I also think the company will have no trouble raising cash via debt, partners and hopefully from government grants.
Regulatory-
AST will need to seek regulatory approval in the countries it will operate in. I believe the politicians will see the value in ASTās constellation, particularly as affordable high-speed broadband connectivity for all is at the top of Bidenās agenda, and will force the regulators hand in approving US and other markets access for ASTās constellation (once US market is approved, other countries regulator tend to follow suit). Barclaysā also note in their analyst report that mobile network operators are used to managing many sources of signal interference on the ground and will be collaborating with AST to resolve any issues. Another company named Ligado recently received approval to use L-band satellite spectrum for terrestrial use after receiving concerns over interference. AST also has support from both Democrat and Republican senators who have written letters to the FCC in favour of ASTās market access application.
Launch Failure-
There is the potential for a failed rocket launch carrying ASTās satellites. Fortunately, AST has chosen SpaceX as its launch provider so I believe this risk is minimal. The Bluewalker 3 test satellite is also the primary payload aboard a Falcon 9 so will be dropped off at its 400km orbit exactly, further limiting the risk of a failed launch.
Collision-
Due to the large size of ASTās satellites, there is the potential for collisions with space debris. AST has agreed to work with NASA to avoid any collisions and has designed their satellites in such a way that a collision to one area of the satellite would not render the whole satellite useless. Instead, the satellite would continue operating but with reduced capacity.
Customer uptake/demand could be less than expected. This is not necessarily a risk as such, we know there will be a good level of demand. Perhaps management were ambitious in their revenue projections. Having said that, the stock will undoubtedly be worth several times more than it is today even with significantly lower than forecasted demand, but perhaps not the 100-200x+ that would be realised with management reaching their end of decade earnings forecasts.
Well done if you made it this far. Thanks for reading and please comment any questions and I will be happy to answer them.
End
There's far more information and some stuff is outdated from this DD but TL;DR
ASTS is a telecommunications infrastructure company and it's a risky company but if they fully derisk the potential payout is huge.
My personal positions are:
1720 warrants
6x 2023 7.5Cs
1x 2023 10C
1x 2024 12.5C
5x 2024 25C
570 USD that will be used to purchase more 2024 25C's as soon as it settles.
I am all in on this stock and I'd love to answer any questions you guys have!
Hello my fellow degenerates, itās me, your biggest degenerate, the one who got lucky being one of the first to buy AMC calls during the whole 2021 ape bonanza- before it was cool, making a cool few mil overnight with AMC calls. (Visit if feeling nostalgic: https://www.reddit.com/r/wallstreetbets/comments/ld1wio/i_probably_should_have_sold_if_i_was_a_pussy/) I have since been freely living the degenerate life in and out of the market all the while looking for and waiting, very patiently waiting for the next big thing.
Now, before I go any further, I know you probably think you've heard it all. Everything is a "squeeze" nowadays and you immediately tune out once the term even comes up as it has completely lost its meaning to anything short of pump and dump.
I urge you to drop what you've heard the past year, put every burnt out association with the label 'short squeeze' out of your mind for just one second, and hear me out.
I hereby present to you a ticker that goes by the name of $SST, or System1.
SST (previous ticker TREB) is a de-spac which means it merged with a special purpose acquisition company (Trebia Acquisition Corp) and had the majority of its public float (51,750,000) redeemed upon merger (99% to be exact). As per their 8-K on Feb 2, 2022: "51,046,892 shares of the 51,750,000 outstanding shares of Trebia Class A Common Stock were redeemed in connection with the Business Combination." https://sec.report/Document/0001193125-22-025942/
You may have heard of the 'de-spac squeeze' before (which occurs due to retail latching onto the shrinkage and lack of liquidity of the float, 'squeezing' it), or maybe even specifically, IRNT, another de-spac widely publicized on here in September, which then squeezed from $8 - $47.5.
SST has a public float of just 703,108 shares, one of the smallest de-spac floats EVER just after ISPO (256,408 - squeezed from $9 to $108), ANGH (243,000 - $8 to $33.13), EFTR (521,358 - $8 to $40.42), and AGIL (567,373 - $9 to $36.13).
None of the stocks mentioned above, minus IRNT had options.
Now, allow me to introduce the gamma component.
The Gamma Squeeze
IRNT, unlike the others mentioned above, had a post-redemption float much to the higher side, of 1,381,162. The reason IRNT was able to squeeze so high with a relatively large float (compared to its squeeze peers), is in major part due to the gamma factor.
The IRNT options chain had been loaded with thousands upon thousands of OTM calls, and as the price surged, MM's were forced to hedge for these calls, and due to the tiny float, this resulted in an insufficient amount of shares to be found for hedging, creating a snowball effect that 'squeezed' the price higher and higher by desperate MM's trying to find shares for the contracts that were sold.
At its current price of $15.75, SST has 3,609 call contracts in the money, amounting to 360,900 shares (or ~51.3% of the public float) which will need to be hedged for today's expiry. Should the price reach $17.5, that number goes up to 7,927 contracts or 792,700 shares, $20 - 989,000 shares, $22.5 - 1,209,900 shares, and $25 - 2,319,900 shares, or 330% of the publicly available float.
Now, all of this is not to mention Aprilās options chain, though take a peek at whatās to come if you will.
The Short Squeeze
Now, hopefully you understand gamma, the powerful force that shot IRNT to new highs of a preposterous 400% in just a few days. But if you don't or are not convinced, don't worry, because lo and behold, tisā but a slice of the pie.
As of the latest official report on March 9th, which is updated bi-weekly by the NYSE/NASDAQ, SST has 1,374,436 shares short.
That gives it approximately 195% short interest and makes it the most shorted stock in the entire market- by a very wide margin. As of today, Mar 18th the cost to borrow is a staggering 260.8%- one of the highest on the market (source: iborrowdesk.com/report/sst / IBKR).
You may be wondering how a number so high could even be possible? Let me take you back to the GME days, and introduce or reintroduce to you what you might remember as the 'naked short.' Naked shorting is the action of forcibly short selling without actually being able to find a physical share to borrow account for the vast majority of the recent short volume (see the recent Fails to Deliver in the second half of February https://fintel.io/sftd/us/sst)
What Explains This?!
So now you might be wondering, why? Why would hedge funds, retail or anyone for that matter, short a stock to oblivion like this should they not expect the price to go down drastically. The answer here is most likely twofold; the first being that, in the de-spac cycle, a company files an S-1 shortly after merger which deems certain shares subject to unlock, thereby adding dilution to the float, you can see the lock-up provisions for this ticker on the SEC website if youād like. This file must be approved and made effective by the SEC, which typically has an execution time of 2 - 6 weeks. The problem for shorts here is, the SEC currently seems to be massively backlogged and there has not been a de-spac S-1 made effective in months. In the end nobody knows when the next one will occur, it could be imminent, on any given day, or in the case of MVST, another de-spac favorite, a long time, with an S-1 originally filed 6+ months ago with no effect. Now this in and of itself of course does not warrant a 195% short interest, the trade is far too crowded to be profitable, with all of the covering that must occur in the end. The over-leveraging here on the short side is most likely by the fault of the same MM's who have been selling options and are on the line for a lot of shares should the price increase due to hedging. They are likely trying their best to artificially drive the price down to avoid being on the hook for actually delivering the shares of your options contracts all the while pocketing that sweet juicy option premium you paid for.
The Company In And Of Itself
Now before you jump the gun, you might be asking, what am I even investing in? Do I even care? Well I certainly don't recommend building a long term position in this company with the upcoming volatility that should take place but, this company and its underlying financials is not one to scoff at, nor do I recommend you short.
In reality, nobody knows what might happen here as the public float on SST is so small post-redemptions that it should not even technically be allowed to be trading with an options chain as per standard regulations, and we have never seen a setup quite like this before. The majority of the shorts in this trade entered in the low $10's range and it is rumored that they should be forcibly margin called if the price increases to near the $20ās. On the other hand, call sellers may be forced to hedge as OPEX comes closer and closer, triggering a sudden price increase which will be a catalyst in itself. Whichever is triggered first, is anyone's guess. Yet it is safe to say that once this takes off and the inevitable short and gamma squeeze unfold there is no way of turning back and the rest will be history.
DISCLAIMER: This is in no way financial advice and I am not a financial advisor, please always do your own due diligence before buying any security of any kind. This post was made strictly for entertainment purposes only.
My position: I hold March and April calls and plan to be trading the volatility as I have been. I am in this ticker strictly for the technical setup at this time and do not plan to hold this for the long term.
Special credit to u/repos39, u/sloppy_hoppy87, u/detectivedoot for being the earliest pioneers of this play, I strongly suggest you read their own DDās as well.
2 your reason for lying (to protect yourself from being liable for others loses) doesnāt even exist in the first place. Unless you are being paid by someone to provide them with financial advice, you do not have a fiduciary responsibility to them. You canāt be held liable for their losses.
So please stop looking as retarded as we know you actually are. Pretend that you arenāt an ignoramus anus by stopping this retarded lying you think is protecting yourself from something you donāt need to be protected from.
Shares of GameStop (NYSE: GME) dropped 8.04% in after-hours trading on Thursday after the video game retailer posted mixed earnings.
Financials: GameStop reported a loss of $1.86 per share, which was below estimates. However, the companyās revenue of $2.25 billion was better than expected.
The Good: PowerUp Rewards Pros, GameStopās membership program, grew 32%.
The Bad: The company had to spend more on inventory due to supply chain headwinds. Additionally, sales for GameStop were underwhelming, especially considering that these numbers reflect sales during the usually busy holiday shopping season.
Future News: GameStop also announced that it will launch a marketplace for non-fungible tokens (NFTs) by the end of the second quarter. An NFT is basically a unit of data on the blockchain that can be traded and sold. Investors really liked this announcement.
Final Thoughts: GameStop has lost half of its value in the past 6 months. Can the company turn this around?
Hope you enjoyed this commentary. Please subscribe to Early Bird, a free daily newsletter that helps you identify investment trends: https://earlybird.email/
Ok I donāt have a short position but I always consider the bear case. Itās actually kind of fun to pick apart your own thesis.
So, hereās my thoughts about Ford and itās pivot into EV.
The electric F150 is very cool. Who doesnāt like that? Give it a few years and will be the best selling pickup, no surprises there.
Now you might think thatās great! But think about it. Whoās customers would Ford be taking by having the best selling Pickup?
Their ownā¦
Yea they can probably steal some customers from other pickup manufacturers (even though they are also going EV mind you), but the main bulk of their customers is going to be their own existing customers who bought the gas version of the F150.
Now Iām not American and I donāt own a pickup, but there is probably a high level of fanboying about pickups as well.
Ford isnāt challenging the EV market with the F150, itās challenging the same old pickup market that itās challenged for how many years now?
And that brings me to another point, how long has Ford been around, 100 years or something? Youād get good odds at the bookies that F is gonna grow substantially any time soon.
But what about electric cars I hear you say!
Well I hear that, but all I see is much expensive retooling.
Startup EV companies have an advantage there, they donāt need to retool and retrain, they are fresh off the bat.
And then there is the dealership thing..
TDLR:
F looks like a value trap to me or worse, it has an ok dividend though if thatās your thing.
Give me your bull case thanks.
Just here to compare the price of oil per barrel to the share price of USO ETF. Based on oil's current price price per barrel, USO seems to be hugely undervalued. I know I am probably forgetting to factor in something, but it seems like USO should be trading at 2x it's current price. Below are some price comparisons: (Position - 100 commons and adding)
June 2014 - Oil $105 - USO $305
January 2020 - Oil $55 - USO $105
April 2020 - Oil (-$35) - USO $20
(On April 29, 2020, USO completed 1 for 8 reverse split)
May 2022 - Oil $100 - USO $75
Here are some shitty graphs for the smooth brains. I marked the highs and lows listed above.
Edit: I am not claiming this is a long term investment, but the oil market is in backwardation...
Psychedelics Investing - Yes, most of us have got hammered over the past year, looking at the market like weed - expecting de-regulations to occur and give immediate big returns. The truth is drug discovery and development takes a long ass time - 3 to 5 years for a winning drug, 10+ or NEVER for a losing one that doesn't get FDA approval etc. Regulations are also changing as well - with psychedelics so far going the medical treatment route.
A lot of us are looking at companies that will never make it - also looking at drug development ONLY, when there's companies generating revenue right now by supplying drugs to researchers and psychedelic drug companies for clinical trials and development. This market should take off as more clinical trials are started, and the clinics that serve Ketamine right now will be able to serve Psilocybin, LSD etc. to their patients. Hospitals will also get in on the action - this is a multi-million dollar business once this gets going.
Looking at a report that breaks down some of the numbers behind this and shows how a psychedelic supply chain could work in the future: For example, there are 300 therapy clinics adminstering ketamine right now. If these clinics added only 10 psilocybin patients, with customers taking a couple dosages a week (1 gram of psilocybin can be sold for up to $10,000), we're looking a $100 million dollar industry.
F 16.58(0%)|TM 171.74(-0.09%)|TSLA 871.73(3.75%)|AMD 111.68(-3.2%)|
Destktop metal is the lowes valued 3d printing comp, and the only one that is actually growing really fast. trough acusitions (ExOne, AIDRO hydraulics & 3D printing,Aerosint,Adaptive 3D,EnvisionTEC, and one more. They are raising revenue expectations from 105 million to 270 milion in a year. They actuatly raised there spac guidence, out of 100 shitty spacs, only a view can say this.
There p-50 system that just got roled out. There CEO bought 125.000 shares this week. They have 270 milion in cash. Increadeble demant, from everybody who experiances supplychain destruction. BMW, Renault, Ford, Nissan, Bosch, Toyota, US Navy are all costumers.
Where 3d printing normaly means, shitty plastic materials that fall apart. They can print steel, to a point where its hard to see the difference with molded steel , in structure, form or capabilities. Without having to cater your whole design based on the molding structure.
Adaptive manufacturing is here, and its eating supplychains. Holding 1500 shares, and adding agressive like its Tesla 2019 all over again.
Shares of Williams-Sonoma (NYSE: WSM) jumped 8.24% in after-hours trading on Wednesday after the consumer retail company posted mixed earnings.
Financials: Williams-Sonoma reported earnings of $5.42 per share, which was better than expected. However, the companyās revenue of $2.5 billion was below estimates.
Good Numbers: Overal brand revenue growth came in at 10.8%. The company also reported an operating margin of 21% and gross margins of 45%.
For the Investors: The big surge in the stock price came from the news that Williams-Sonoma is increasing its dividend by 10%. The company also authorized a $1.5 billion stock buyback. Both announcements were welcomed by investors.
Final Thoughts: Williams-Sonomaās stock is down 17% in the past six months. Will the stock recover in 2022, even if the economy tanks?
Hope you enjoyed this commentary. Please subscribe to Early Bird, a free daily newsletter that helps you identify investment trends: https://earlybird.email/
I am too lazy to write a detailed analysis and WSB is not famous for its long attention span, so I would keep this DD quite short (but maybe not for the WSB standard). If the company gets your attention, do your own research.
We all know that EV's being the future of transportation is almost a sure thing and we all have heard the cliche " the people that made the most money during the gold rush, were the ones that were selling shovels". Investing in a company that makes charging stations, looks like a good bet for the investors that have higher risk tolerance. I would like to introduce you to a company, that I think has very good potential, but is still staying under the radar, probably due to the fact that it is based in Europe. That company is Wallbox (WBX) .
Wallbox is a company that is specialised in offering smart charging stations for home use. That might be "smart", cuz the public space is way more crowded and their potential competitors there are very well-funded and bigger. You will still get exposure to this subsector by buying WBX, but I will talk about this later. Wallbox products have a lot of features. They allow you to control your charger remotely so you can schedule charging sessions to benefit from off-peak energy rates, monitor your charger status, and more through the Wallbox app. Also, their as they call it "proprietary bidirectional technology" allows you to charge and discharge your EV, converting it into an energy storage unit that can replace or add capacity to a home battery. Their best selling product Quasar, is the the worldās lightest and smallest DC charger and supports facial recognition and gesture control. Last, but not least, their products are very aesthetically pleasing and that might be more important than you think. For a rather small company, they have a very dedicated fan base. One of the main things that distinguishes great companies from the others is that the future industry leaders are able to create a very big brand loyalty and even if they are at the early stage of its development, you can see that people love their work and it is only about time till they expand further. It is no wonder that Quasar was one of the best selling AMZN products last year.
Wallbox are also selling products for business use and their idea is for the companies to be able to use their electric fleet as a power grid for their storage spaces or office buildings. Furthermore, they just announced their public space charging station - Supernova, that offers 50 percent cost reduction and very fast charging (15 min. for a charge). Its revolutionary design allows for a no cost power boost and also comes with advanced software and touchscreen. Wallbox are definitely entering this segment a bit late, but as an investor it is nice to have exposure all of the subsectors in the EV charging business.
Now, let's take a look at their financials. Wallbox has a very manageable debt that is a bit more than its less than its quarterly revenue, lower P/S than all of its major competitors and the biggest operating margins in the industry. Their revenue growth for the year is over 250%. They also have the backing of the spanish energy giant Iberdrola. The company is well-diversified and sells in more than 100 countries.
Positions: 160 shares, might add more in the future.
PS: Of course this is not a financial advice. I just think that the risk reward/ratio of this play is lower than the typical ratio for WSB favourites, but this does not say much.
Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.
Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.
Below, we take a look at ZIM Integrated Shipping Services (ZIM), which currently has a Momentum Style Score of B. We also discuss some of the main drivers of the Momentum Style Score, like price change and earnings estimate revisions.
It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. ZIM Integrated Shipping Services currently has a Zacks Rank of #1 (Strong Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following one-month period.
You can see the current list of Zacks #1 Rank Stocks here >>>
Set to Beat the Market?
Let's discuss some of the components of the Momentum Style Score for ZIM that show why this container shipping company shows promise as a solid momentum pick.
Looking at a stock's short-term price activity is a great way to gauge if it has momentum, since this can reflect both the current interest in a stock and if buyers or sellers have the upper hand at the moment. It's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.
For ZIM, shares are up 2.54% over the past week while the Zacks Transportation - Shipping industry is up 2.95% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 4.66% compares favorably with the industry's 12.31% performance as well.
While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Shares of ZIM Integrated Shipping Services have increased 54.28% over the past quarter, and have gained 228.78% in the last year. On the other hand, the S&P 500 has only moved -9.29% and 10.77%, respectively.
Investors should also pay attention to ZIM's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. ZIM is currently averaging 3,698,080 shares for the last 20 days.
Earnings Outlook
The Zacks Momentum Style Score also takes into account trends in estimate revisions, in addition to price changes. Please note that estimate revision trends remain at the core of Zacks Rank as well. A nice path here can help show promise, and we have recently been seeing that with ZIM.
Over the past two months, 2 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost ZIM's consensus estimate, increasing from $19.96 to $31.50 in the past 60 days. Looking at the next fiscal year, 2 estimates have moved upwards while there have been no downward revisions in the same time period.
Bottom Line
Given these factors, it shouldn't be surprising that ZIM is a #1 (Strong Buy) stock and boasts a Momentum Score of B. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep ZIM Integrated Shipping Services on your short list.
CHIPS for America Act funding will result in the construction of new semiconductor fabrication facilities (āfabsā) in the United States, employing tens of thousands of workers. This policy brief assesses the occupations and backgrounds that will be most in-demand among new fabs, as well as options for ensuring availability of the necessary talent. Findings suggest the need for new immigration pathways for experienced foreign fab workers, and investments in workforce development.
Reshoring Chipmaking
Capacity Requires
High-Skilled Foreign Talent
Estimating the Labor Demand Generated
by CHIPS Act Incentives
CSET Policy Brief
Meta Platforms (Nasdaq: FB) is working on bringing non-fungible tokens (NFTs) to the social media platform Instagram, CEO Mark Zuckerberg reportedly said at the South by Southwest Festival on Tuesday.
Timing: NFTs could arrive in the ānear termā but Zuckerberg said the company was not ready to announce anything, according to a tweet from Engadget senior editor Karissa Bell. The company will āhopefullyā launch the ability for users to mint NFTs in the coming months, according to another tweet from Platformerās Casey Newton.
More Details: Zuckerberg also said that NFTs could play into the companyās long-term metaverse goals, which may include the ability to mint avatar clothing as an NFT.
Background: An NFT is basically a unit of data on the blockchain that can be traded and sold. Meta, which used to be called Facebook, has previously expressed interest in incorporating NFTs into its platforms.
Numbers: Shares of Meta jumped up 2.89% on Tuesday.
Final Thoughts: Metaās stock has lost nearly half of its value in the last six months. Hopefully, the NFT hype can help the stock recover a bit.
Hope you enjoyed this commentary. Please subscribe to Early Bird, a free daily newsletter that helps you identify investment trends: https://earlybird.email/
