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Ricardo Espinosa

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  • Facebook beats by $0.10, beats on revenue [View news story]
    That short $FB 65/70 call spread and long $AAPL 500/530 call spreads doing great. Intelligent investors sell to optimists and buy from pessimists.
    Apr 23 07:54 PM | Likes Like |Link to Comment
  • Facebook's Share Valuation: What Is The Market Expecting? [View article]
    That´s extactly what the market is expecting, for Facebook to be like Google circa 2000. But the point is, there is very small room for mistakes. If they fail to provide positive guidance in any quarter, the market will punish the company more than it will drive the price up when Facebook beats guidance.
    Let´s keep tuned and check back by summer how this stock is doing.
    Apr 3 11:28 PM | Likes Like |Link to Comment
  • Facebook's Share Valuation: What Is The Market Expecting? [View article]
    My aim is still to generate maximum absolute returns, and my tolerance for risk is enormous. What I cannot do is put blind faith in a "story" stock such as Facebook. This company might as well be the next Google, but while I differ from this, my investment focus is on buying exclusively cheap companies. I do not think Facebook can deliver over 60 years of revenues as dividends, and do think the "greater fool" will stop buying once he realizes that the stock is valued to perfection (not anymore at stock below $60, but still expensive).
    The evidence has made me focus on companies that the market values as worse than their current assets globally, making us believe the company is better off being sold immediately rather than being operated by current management. This strategy returned 35% vs. a market return of 17% (data from 1985-2007, data from SG Equity Research).
    I do think you have developed a great diversified portfolio and have accumulated great experience in the market, let's hope to see the results of going long "cheap" stocks and short "expensive" stocks such as Facebook. Maybe this time it is different.
    I do hope to see you around in future articles, your POV is greatly appreciated.
    Mar 30 08:02 PM | Likes Like |Link to Comment
  • Facebook's Share Valuation: What Is The Market Expecting? [View article]
    Think of it from a marketer's perspective. Let's say you have a $10 million buget to advertise. What would justify you spending double that amount in 3 years? Only if your profits (not revenues) increase by more than $10 million from that ad spending. And how would you track how many incremental profits you have from advertising on Facebook? It's difficult, but you could say, if your profits increase by more than what you are spending on ads, you could theoretically keep advertising to about 7-10% more people per year, which is around what Facebook's users would keep growing year over year. So most of the +40% revenue the market is expecting from Facebook comes not from incremental users, but from price increases on ads. What I state is that I do not believe marketers would keep purchasing ads at any price, they are not that stupid.
    Mar 26 06:28 PM | Likes Like |Link to Comment
  • Facebook's Share Valuation: What Is The Market Expecting? [View article]
    That's true, Facebook is a growth stock and investors have, historically, placed a premium valuation on these stocks. At the end, those with high historical growth and continued high growth have, historically, given worse returns than the S&P 500.
    Of course my assumptions of future marketer demands are simply assumptions, and time will prove them right or wrong.
    And if Facebook is like Google around 2000, then this is the best buying opportunity you will ever get. I do not think that is the case, and I do not think this company will go bankrupt, just that it will not grow as much as expected, but that's why there are markets, buyers and sellers, everyone has a different opinion. Thanks for laying out your response logically.
    Mar 26 06:01 PM | Likes Like |Link to Comment
  • Facebook's Share Valuation: What Is The Market Expecting? [View article]
    Those are great purchases Nicholas! But I disagree that valuation metrics are exclusive to 3M or "mature" businesses. There is ample evidence suggesting investors overpay for growth. LaPorta (1996) and Forsythe (2007) showed that stocks with the highest long-term earnings growth forecasts delivered lower returns. Cusatis and Woolridge (2008) took a sample from 1984 to 2006 and found out that analysts and investors expected "growth" stocks to return 17% per annum, but results showed that actual delivered growth was a meager 7%.
    Take miners, as Greenwald did in his great book "Value Investing", where the market expected these stocks to have 27% earnings growth for 2 years and 15% long-term growth, or around 20% for 10 years. At the time this book was written (2009), the mining industry was trading at around 60x earnings. That didn't end very well.
    Right now,the only industries trading at above 4 times price/sales ratio (more than 4 years of earnings= "growth"?), according to data from Prof. Damodaran (http://bit.ly/w4jRpw~adamodar/New_Home_Pag... , with data from Bloomberg, are:
    Biotech (10.27), Computer Software (4.43), Information Services (4.14), R.E.I.T. (5.03), Real Estate, Development (6.04), General/Diversified Real Estate (10.32). Facebook is trading at 22.61 times sales. If that doesn't sound like investors are overpaying for growth, I don't know what does.
    Mar 26 04:50 PM | Likes Like |Link to Comment
  • Facebook's Share Valuation: What Is The Market Expecting? [View article]
    Google going bankrupt? Not even close, it has effectively diversified its business lines into cash-generating machines. Its search engine is not only the most used, but when people search google, they are also looking for information about products and services. Also, people pay to get their web page advertised in the first results. Facebook has none of these 3 characteristics. I did not say they were going bankrupt, I just pointed out that investor's expectations of future cash flows for this company are too optimistic ($15-$20 billion EBITDA) for the present share price to be justified.
    Mar 26 04:13 PM | Likes Like |Link to Comment
  • Research In Motion Share Valuation: Buyers Beware [View article]
    Hey friend! How is that investment on BBRY doing? Pretty sweet I guess.
    Sep 27 06:13 PM | Likes Like |Link to Comment
  • Salesforce.com: The Short Of 2013 [View article]
    Close at least half of your short position today.
    Jun 6 01:44 PM | Likes Like |Link to Comment
  • Profiting With Weekly Options: Time Is On Your Side [View article]
    I have not traded time spreads, although I don't think they are bad, I prefer short or long put or call spreads but of the same time frame.
    Apr 10 06:34 PM | Likes Like |Link to Comment
  • Netflix: A Good Company, But A Terribly Overpriced Stock [View article]
    Close the short position sold at $27.37, repurchase said option position at $21.85 per contract or less for a nice 25%+ gain.
    Apr 9 02:04 PM | Likes Like |Link to Comment
  • Netflix: A Good Company, But A Terribly Overpriced Stock [View article]
    haha well you were right on 2 out of those three assumptions Mark, cheers!
    Apr 9 01:20 PM | Likes Like |Link to Comment
  • Netflix: A Good Company, But A Terribly Overpriced Stock [View article]
    That's true, that's why I see NFLX and this market entering a "greed" phase, where there is no fear at all, people just ride long positions, when the fall comes, as you correctly stated, no stop order can help you if an AH, earnings or black swan event happen.
    Mar 3 04:53 PM | 1 Like Like |Link to Comment
  • Netflix: A Good Company, But A Terribly Overpriced Stock [View article]
    No, the DCF model states that company and hence its stock price, is derived from the expected cash flows the company will earn in the future.
    The $217 price is, and based on the assumptions stated in the article, what would need to happen in the next years for the stock price to be at that level right now.
    I don't know why people would like to get their hands on this stock, given the risk/reward ratio, at this levels.
    If NFLX has given you gains, I suggest you take them now or at least place stops in place.
    I am NFLX user but I would not buy its stock, it is way too volatile for my taste, even when it was around the $60-70 area a couple of months back.
    Mar 2 04:59 PM | Likes Like |Link to Comment
  • Netflix: A Good Company, But A Terribly Overpriced Stock [View article]
    Kurtis, I am also long AAPL via Sep call spreads, it does create a nice pair trade when you factor in shorting NFLX.
    Mar 1 09:05 PM | Likes Like |Link to Comment
COMMENTS STATS
442 Comments
340 Likes