Don't Fall For The Hype On SolarCity [View article]
"As with the other Elon Musk business, SolarCity doesn't appear to have a real path to profits. The company spent more on operating expenses during the last quarter than it produced in revenue. A business building scale at the cost of short-term profits might actually be a wise move. The real question though is why investors are willing to pay up for such a business that hasn't proven out the business model. Typically such concepts don't end so well for those being sold such a business plan. Investors won't wait forever for profits that the company gets farther away from each report."
I think you are missing entirely the business model here. SolarCity is making big investments upfront in exchange for a steady stream of payments for 20 or more years. This is very similar to how a house mortgage works, but they are financing 100% of the cost of the system so that costumers are even more appealed to it and they can accelerate growth (and for now you can consider the ITC as the "down payment"/"equity" a house buyer would have to put up to buy a house). As more consumers sign up, the cash inflows will increase and at one point (not very far I'm sure) will be enough to cover/finance new systems and spread the fixed part of the operating costs among a wider base. This is the typical path of any company trying to achieve economies of scale. There will be a default rate, like in any set of mortgages. There's a reason why Congress is trying to consider these solar leases/PPAs as REITs. They would be pretty stable and safe for many years to come.
Now to address another concern of yours, the potential in the market is there to reach this point, and it will happen sooner rather than later. I agree with you that the stock price is at this point way ahead of itself, but eventually earnings/cash flow will catch up. As SolarCity's CEO said during the conference call, you can bet they have enough room to prove their business model:
"Lyndon Rive
So we have what I call 12 main states and two small other states, that’s 14. We are content with where we are right now. The market is so big, we could meet our growth targets for the next 10 years just focusing on one state. I mean it's such a big market. So as our cost come down, and cost of retail electricity increases, we'll continue evaluating new markets. We are looking at new markets and might open up one more new market this years, but it's still (inaudible)."
Taking Profits On First Solar As 'Promises, Promises' Begins To Be The New Theme [View article]
Maybe after seeing the recent run-up in the shares as a result of their optimistic Analyst Day they toned down their expectations in the latest earnings release. Wouldn't that suggest that they went back to under-promise and over-deliver? This could be seen either way, positive or negative. Regardless, patience is the one and only thing you need to remain invested in the sector for the LONG TERM. Unless you're trading First Solar, I wouldn't be so sure to get rid of the shares. This pullback was DEFINITELY expected given the impressive rally in Solar for the past weeks.
Chipotle At $400: A Free Cash Flow Analysis [View article]
Good practice of the DCF valuation model. But as others have mentioned, the model is as good as the input parameters you use. As such, it's advisable you come up with different scenarios of growth rates to define a range. In addition, if you are going to subtract the liabilities from the discounted equity value, then you need to add up the cash.
Thanks for your feedback Mark, I sincerely appreciate it. As for the options market, it's true that oftentimes its a good indicator of the sentiment of investors around a stock, but as the article states it, with all that we know about the company and the behavior of the stock for a long time, one would be wiser to sell the puts short and in all likelihood pocket the very nice premium.
If option 1 turns out to be the case, then so be it. Who cares.. there are thousands of other good companies where you might have a better risk/reward ratio. Much better. Or new companies that will also be born with similar prospects and success stories. But if Chipotle keeps delivering, they are doing it in the back of an already extreme valuation, and the crazier it gets, the more difficult it becomes for them to sustain it. In fact, I don't think they care much at these levels.. insider selling has been rampant for the past few weeks.
The tides on this company will not turn until they show a major setback/weakness. Until then, let's just witness how smaller the balloon gets as it reaches higher altitudes in the sky.
Pimlico, krish202's answer addresses the greatest disadvantage of shorting based solely on valuation, and the article itself explains it with the line "the market can remain irrational longer than you can remain solvent".
Being long a stock, you might be willing (if you believe blindly in the business) to lose your entire investment, and your limit would be precisely that, just the money you deployed to it until it eventually reaches zero, and you can also wait, wait, wait as long as you want without any obligation until the losing stock recovers (if at all).
On the other hand, going short is a whole different story. Your limit is infinite, and because of the fact that you will need to eventually cover, you can only do so up to the amount of money you have available at any given time. If we experience a sudden market rally, or a period of irrational exuberance, high growth & momentum stocks are the ones who shoot to the skies. You don't want to incur that risk, because you might not have that money available and might even have to borrow from other assets at wrong times in order to cover.
I'm with you. I experienced the same situation a long time ago and can understand your pain, but you need to be overly careful with this company and plan your move very well. Try to use a stop loss. Thanks for your feedback.
Presicely right krish202, very accurate comment. For those who under the current circumstances still insist on going short based solely on valuation for instance, the best thing to do is to open a very small position, just "to test the waters", but trying to catch the right moment when Chipotle will slow down is nothing short of futile. The irony is that this same "feeling" that in the next quarterly release Chipotle will finally hit a bump on the road (backed by seemingly compelling arguments) has put many shorts significantly underwater in the past. There's no doubt however that at one point in the future Chipotle will reflect its earnings power more accurately, but until then people should wait. Buying at these prices is also very risky, but the same strategy can be used for those trying to go long, start with something very very small "just to test the waters".
What To Expect From The Upcoming Solar Panel 'Dumping' Investigation [View article]
The decision from the Department of Commerce has been (yet again) delayed from March 2nd to March 19th due to the "extraordinarily complicated" investigation.
Why Cash Should Be A Significant Portion Of Your Portfolio [View article]
This is good stuff surfgeezer, a completely dividend-focused portfolio for the purpose of generating income is also a good strategy. The only thing I'd be a bit careful about is that you would need to start with a good base capital to generate something meaningful over time. I love it when people have different views and different strategies, and I'm as open minded as I can be to give further thoughts to them all. Just out of curiosity, what yield in your overall portfolio do you usually target nowadays? In the instances where the dividend of one of your holdings is in jeopardy or eliminated, how do you adjust? Do you close the position entirely and re-balance? Do the other holdings compensate for when the loss in price exceeds all dividend payments received from that troubled holding?
Thanks for providing your 2 bits. They will always be welcome.
Why Cash Should Be A Significant Portion Of Your Portfolio [View article]
Easyrob, selling covered calls will never go wrong! Once you get a good grip on it is a great strategy to generate some further cash and properly take some profits off the table. Thanks for your feedback.
Why Cash Should Be A Significant Portion Of Your Portfolio [View article]
lweekes, I personally feel that whenever you have so many doubts about the overall markets is an indication that it might not be the best time to deploy your cash. You can deploy some in a broad-based index just to take advantage of the period of multiple expansion (b/c in those periods pretty much anything of reasonably good quality goes up) but you still won't know when that might end or abruptly correct (if at all), and all you're trying to do is to benefit from an uptrend. That's not the same than investing in a great company at a decent/bargain price. What we feel "forced" to do nowadays is to hop up on this train. Let's not lose perspective of that.
So, I'm sure that you're quite familiar with the times and the feeling when you've come across superb opportunities and you're fully convinced of your premise, and the only determent is the fact that the overall markets are in "scary" times. In these moments, you should do the opposite and deploy that cash, albeit in phases, because we will never be able to time the perfect bottom. Provided you have enough patience and some time on your side, you know it will eventually pay you off. The article argues that in those times not only we should deploy it, but cautiously load up (and "cautiously" refers to some strategies we can follow because, in the end, we can still be wrong), so paying for some protection goes a long way.
I try to base my investments in fundamentals rather than in general trends of the market, because when those trends reverse, I want to be able to stomach it and stick to my conviction, provided fundamentals do not materially change.
Why Cash Should Be A Significant Portion Of Your Portfolio [View article]
Surfgeezer, while I understand your investment premise and overall strategy, why don't you have a little bit of both? You can still follow your income-generating strategy (which I'd assume you do through dividend-paying stocks), but you can also keep some good "powder" for whenever those opportunities come around (b/c they do come around, more often than what we think).
Sticking to just one single strategy might limit your options a bit. But, if you're quite happy with the results you're obtaining so far then there's no need to change. I'm not trying to persuade you though, the article states the importance and advantages of keeping cash available and resist the external forces that push you into making unnecessary or ill-timed investments just because "the train is leaving the station" and you don't want to miss out.
Don't Fall For The Hype On SolarCity [View article]
I think you are missing entirely the business model here. SolarCity is making big investments upfront in exchange for a steady stream of payments for 20 or more years. This is very similar to how a house mortgage works, but they are financing 100% of the cost of the system so that costumers are even more appealed to it and they can accelerate growth (and for now you can consider the ITC as the "down payment"/"equity" a house buyer would have to put up to buy a house). As more consumers sign up, the cash inflows will increase and at one point (not very far I'm sure) will be enough to cover/finance new systems and spread the fixed part of the operating costs among a wider base. This is the typical path of any company trying to achieve economies of scale. There will be a default rate, like in any set of mortgages. There's a reason why Congress is trying to consider these solar leases/PPAs as REITs. They would be pretty stable and safe for many years to come.
Now to address another concern of yours, the potential in the market is there to reach this point, and it will happen sooner rather than later. I agree with you that the stock price is at this point way ahead of itself, but eventually earnings/cash flow will catch up. As SolarCity's CEO said during the conference call, you can bet they have enough room to prove their business model:
"Lyndon Rive
So we have what I call 12 main states and two small other states, that’s 14. We are content with where we are right now. The market is so big, we could meet our growth targets for the next 10 years just focusing on one state. I mean it's such a big market. So as our cost come down, and cost of retail electricity increases, we'll continue evaluating new markets. We are looking at new markets and might open up one more new market this years, but it's still (inaudible)."
Taking Profits On First Solar As 'Promises, Promises' Begins To Be The New Theme [View article]
Chipotle At $400: A Free Cash Flow Analysis [View article]
Dear Mr. Chipotle Mexican Grill... [View article]
Dear Mr. Chipotle Mexican Grill... [View article]
Dear Mr. Chipotle Mexican Grill... [View article]
Dear Mr. Chipotle Mexican Grill... [View article]
The tides on this company will not turn until they show a major setback/weakness. Until then, let's just witness how smaller the balloon gets as it reaches higher altitudes in the sky.
Thanks for your feedback.
Dear Mr. Chipotle Mexican Grill... [View article]
Being long a stock, you might be willing (if you believe blindly in the business) to lose your entire investment, and your limit would be precisely that, just the money you deployed to it until it eventually reaches zero, and you can also wait, wait, wait as long as you want without any obligation until the losing stock recovers (if at all).
On the other hand, going short is a whole different story. Your limit is infinite, and because of the fact that you will need to eventually cover, you can only do so up to the amount of money you have available at any given time. If we experience a sudden market rally, or a period of irrational exuberance, high growth & momentum stocks are the ones who shoot to the skies. You don't want to incur that risk, because you might not have that money available and might even have to borrow from other assets at wrong times in order to cover.
Dear Mr. Chipotle Mexican Grill... [View article]
Dear Mr. Chipotle Mexican Grill... [View article]
Thanks for your feedback.
What To Expect From The Upcoming Solar Panel 'Dumping' Investigation [View article]
http://bloom.bg/wUhDMW
Why Cash Should Be A Significant Portion Of Your Portfolio [View article]
Thanks for providing your 2 bits. They will always be welcome.
Why Cash Should Be A Significant Portion Of Your Portfolio [View article]
Why Cash Should Be A Significant Portion Of Your Portfolio [View article]
So, I'm sure that you're quite familiar with the times and the feeling when you've come across superb opportunities and you're fully convinced of your premise, and the only determent is the fact that the overall markets are in "scary" times. In these moments, you should do the opposite and deploy that cash, albeit in phases, because we will never be able to time the perfect bottom. Provided you have enough patience and some time on your side, you know it will eventually pay you off. The article argues that in those times not only we should deploy it, but cautiously load up (and "cautiously" refers to some strategies we can follow because, in the end, we can still be wrong), so paying for some protection goes a long way.
I try to base my investments in fundamentals rather than in general trends of the market, because when those trends reverse, I want to be able to stomach it and stick to my conviction, provided fundamentals do not materially change.
Thanks for your feedback!
Why Cash Should Be A Significant Portion Of Your Portfolio [View article]
Sticking to just one single strategy might limit your options a bit. But, if you're quite happy with the results you're obtaining so far then there's no need to change. I'm not trying to persuade you though, the article states the importance and advantages of keeping cash available and resist the external forces that push you into making unnecessary or ill-timed investments just because "the train is leaving the station" and you don't want to miss out.
Thanks for your feedback.