Valens Equity Insights and Inflections - 2018 01 10
TSLA is currently trading at 4.2x UAFRS-based (Uniform) P/B, which is near historical lows, but exceptionally high considering the company's historical profitability trends. At these levels, the market is pricing in expectations for Uniform ROA to see a positive inflection, from -5% in 2016 to 4% in 2021, accompanied by 66% UAFRS-based Asset growth. Analysts have less bullish expectations, projecting Uniform ROA to only recover to -2% by 2018, accompanied by 20% Uniform Asset growth. Additionally, analyst estimates have been consistently declining over the past year, indicating continued bearishness surrounding the firm's outlook. Additionally, Valens' qualitative analysis of the firm's Q3 2017 earnings call highlights that management has concerns about demand and expenses. Given declining analyst and management confidence surrounding the firm's fundamentals, current market expectations are too bullish, and equity downside may be warranted. AET Q3 2017 Embedded Expectations Analysis – Market expectations are for slight improvements in Uniform ROA, but management appears concerned about margins and guidance GD Q3 2017 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management has concerns about the G500, growth, and margins GD Q3 2017 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management has concerns about the G500, growth, and margins AET, GD, INTU
Tesla designs, develops, manufactures, sells and leases electric vehicles and energy generation and storage systems, and provides services related to its products. The company operates as two reportable segments: automotive, which includes the design, development, manufacturing, sales, and leasing of electric vehicles as well as sales of automotive regulatory credits; and energy generation and storage, which includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products, services related to such products, and sales of solar energy system incentives.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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