Folks here know that I am a fan of Elon Musk. He is a technological wiz with entrepreneurial instincts -- someone who takes practical steps to manifest a larger vision. Tesla Motors' (TSLA) stock price reflects high expectations for future performance: the company is now valued at $18.5 billion despite clocking in positive net income once in the past year ($11.12 million in 2013's first quarter). I believe this is the first time the company made a profit. Tesla has managed to produce $128.23 million in operating cash flow so far in 2013.
Tesla's latest car, the Model S, sells for $69,900 and up. Tesla practices "top-down" innovation, starting with a high price-low volume car (the Roadster), then moving toward a medium price-medium volume car (Model S), to a low price-high volume car slated to be released by 2017 (Model E). So far, this business model has worked well to spark interest in Tesla vehicles. It is projected that Tesla sold 20,000 of its Model S cars in 2013.
Tesla's rich valuation builds in three major expectations for the company moving forward, as I see it:
1) The Model E will sell like hotcakes (despite costing above $30,000).
2) Tesla will profitably produce its vehicles.
3) Tesla will outdo a growing number of competing electric and hybrid vehicles.
If Tesla does indeed meet or exceed expectations with these three points, the company will likely prove to be a winning investment going forward. Ford is valued at $60 billion, GM at $56 billion, and Toyota at $193 billion. I would not be surprised to see Tesla join these bigger players within the next decade, in which case the stock will perform quite well despite its current premium valuation.
Tesla's all-electric vehicles, which can travel over 200 miles on a single charge, essentially represent the first realistic alternative to gasoline vehicles (and hybrids) that could potentially be offered at a competitive price. Tesla is in the midst of building a "Supercharger" network of battery charging stations, helping solve the age-old problem of charging electric vehicles on the go. In other words, Tesla is actually making an electric vehicle that could be easier to maintain and "fill up" than a gasoline powered vehicle.
More on the Supercharger network: http://www.fool.com/investing/general/2013/11/02/theres-no-s...
And what Tesla's Supercharger network looks like now: http://electrek.co/2013/10/25/the-whole-west-coast-i5-now-co...
From Consumer Reports on December 26: Those who follow our car Ratings will remember that last spring the Model S earned a road-test score of 99 on our 100-point scale, making it the highest-rated car we’ve tested in the last five years. (http://www.consumerreports.org/cro/news/2013/12/update-tesla...)
Tesla's technological design packs a powerful punch that will be difficult for competitors to match, gasoline cars or otherwise. Tesla has recently snagged two Apple design and manufacturing veterans, Doug Fields and Rich Heley: http://electrek.co/2013/12/28/tesla-taps-apple-manufacturing... Tesla's silicon valley approach to car design and manufacturing will also be difficult for traditional automakers to adjust to and compete against.
Tesla is also expanding worldwide, recently establishing its presence in China: http://electrek.co/2013/12/17/tesla-er-tuosule-launches-in-c...
Tesla is one of the most innovative companies on the planet. Elon Musk has brought together a passionate, dedicated, and innovative team that could very well transform the auto industry over the next 1-2 decades.
My reluctance of jumping in as an investor right now is that the company still has things to prove for having such a premium valuation. We still have at least two years before the Model E is officially released. In the meantime, the company is struggling to net a profit or produce sufficient cash flow to finance capital expenditures. The stock's success is essentially hinged upon near-flawless execution over the next several years.
Right now I see SolarCity as a more reasonable value to invest in the ingenuity of Elon Musk and an innovative business. SolarCity's cash flow production exceeds Tesla's by 50%, yet the company is worth nearly 1/4 the current value of Tesla. SolarCity is also in full gear with its business model, rather than building toward the release of a key product in several years like Tesla. Of course, Tesla and SolarCity are very different businesses and cannot be compared as direct competitors. Still, right now Tesla is a more speculative bet than SolarCity, from my research of the two companies.
My feelings about Tesla as an investment are still up in the air. If the company executes very well I would not be surprised to see Tesla join the ranks of Toyota within the next two decades, in which case the stock would be a 10-bagger from current levels. Should this be how things pan out, the present valuation of Tesla doesn't much matter in the grand scheme of things. Still, until the Model E's mass release, Tesla stock appears to be quite speculative especially with its hefty valuation today.
I am watching closely and trying to understand Tesla more thoroughly. Should the stock get pummeled I will likely open a small position, but for now it is best that I study the company some more before opening a position at current levels.
Feedback, insights, and questions are always appreciated!
David K [more]
Today I was watching a recent interview with Elon Musk, famed multi-billionaire entrepreneur and technology wiz, most of which focused on Musk's activities with Tesla Motors (TSLA) and SpaceX. Out of the 90 minute interview, Musk spent probably no more than 60 seconds talking about SolarCity (SCTY). Musk said his daily involvement with SolarCity is limited because of the incredible leadership of the Lyndon and Peter Rive (Musk's cousins who started SolarCity in 2006 and continue to lead the company).
"Thankfully [SolarCity] requires almost none of my effort, because those guys are just awesome in terms of their execution of SolarCity." Strong words coming from Elon Musk.
In other words, Musk has entrusted the operations of SolarCity -- and his $1 billion+ 25% stake in the business -- to his cousins and the leadership team they have assembled. Of course, SolarCity's new partnership using Tesla batteries could signify what is in store between the two businesses. In any case, I was struck by the trust and admiration Musk has for the Rive brothers and SolarCity's leadership; not only talking the talk, but walking the walk by entrusting his major stake in the company to these fellows.
It was no surprise then, to see that SNL Energy, a business intelligence firm, named SolarCity CEO Lyndon Rive one of the 10 most influential people of 2013:
Led by co-founder and CEO Lyndon Rive, SolarCity Corp. has shaken up the utility industry by undercutting traditional electricity rates with its direct-to-consumer leasing model for distributed solar generation.
With 177 MW of distributed solar installed through the first three quarters of 2013 — and another 101 MW expected in the fourth quarter — SolarCity has supercharged the boom in distributed solar generation and will almost double its installations from 2012.
Instead of requiring consumers to come up with the money upfront, SolarCity buys the system and then sells the power to the customers under a 20-year contract, providing them with immediate savings on their electricity bills.
Now the company, which went public in late 2012, is taking its model to energy storage. In early December, SolarCity, backed by Rive's cousin Elon Musk, announced that it had begun selling energy storage systems to business customers using the same business model it has used to install more than 464 MW of solar energy across the country.
SolarCity said the battery technology, developed by electric car manufacturer Tesla Motors, also backed by Musk, will use learning software that automates the discharge of stored energy to optimize utility charge savings for customers.
The company has set a goal of installing solar for 1 million customers in the U.S. by 2018, Martin LaMonica wrote in an October profile of Rive for GreenBiz.com. In October, SolarCity only had roughly 60,000 customers. But Rive says SolarCity's vertically integrated business model, which offers installation and financing, will allow the company to continue to grow its market share, according to LaMonica.
Rive, who never went to college, and his brother, Peter Rive, founded SolarCity in 2006 with the goal of making solar technology more widely available, not just to the wealthy. Prior to SolarCity, the South African-born Rive co-founded Everdream, a software company that was ultimately acquired by Dell Inc.
For those interested, this is the Elon Musk interview to which I am referring (Musk talks about SolarCity at 1:12:56): https://www.youtube.com/watch?v=O1qyzxxq7QY
David K [more]
Ulta Salon (ULTA) is a business I came across after running some screens in CAPS. The company has a chain of "beauty superstores" in the U.S., and has expanded at an impressive rate over the past several years. Below is a brief analysis I did before making an "outperform" call on CAPS last night. The stock was recently hit 25% after reporting results that didn't mesh with analyst expectations. [more]
SolarCity (SCTY) struck my interest recently, and I am enjoying learning more about the company. It takes some time to fully grasp the company and its product offerings, but I am getting there. Hope this initial analysis is helpful to others, and additional thoughts and feedback are welcome and appreciated.
Elon Musk is someone I would like to be invested in. Problem is, he comes with a pretty hefty price tag. Musk is one of the more innovative minds in the world today capable of putting ideas into action. Tesla Motors, of course, is richly valued at roughly $17.5 billion despite no profit and minimal/erratic cash flow production. Tesla's value comes largely from future prospects with electric vehicles.
SolarCity, another indirect brainchild of Musk, looks a little more reasonably valued with similarly strong prospects. SolarCity is a solar energy provider, "revolutionizing the delivery of solar energy to homes and businesses across the U.S." This year SolarCity is ranked the second solar contractor in a growing $11.5 billion industry. SolarCity's customers include Walmart, Google,
I am intrigued by solar technology, but I'm not looking to invest in a costly business dependent on government intervention for success. In 2012 Fast Company rated SolarCity the tenth most innovative business in the world, noting that "SolarCity expanded to the East Coast and added 12,000 projects, all without a dollar of government funding." SolarCity engages in the design, installation, financing, maintenance of every system. This approach helps new customers, whether residential or commercial, ease into a transition to solar energy. (Fast Company's write-up of SolarCity: http://www.fastcompany.com/3017374/most-innovative-companies...)
SolarCity was founded by Musk's cousins, Lyndon and Peter Rive. The Rive brothers, who are 35 and 38, respectively, founded SolarCity in 2006. Lyndon Rive serves as CEO, and Peter Rive as COO and Chief Technological Officer. Elon Musk serves as Chairman, owning approximately 22.5% of FirstSolar shares. See more about the management team here: http://www.solarcity.com/media-center/management-team.aspx
SolarCity is yet to net a profit, so the company is certainly a risky play at this point. However, the long-term picture shows a tremendous amount of potential that the company is capitalizing on by improving costs and gaining new customers. Nominal contract payments (estimated long-term payments remaining on SolarCity's installations) to SolarCity have increased from $500 million in 2011, $1 billion in 2012, to $1.7 billion so far in 2013.
SolarCity's "Direct Financing" program enables customers to put down no capital upfront for a solar installation, opting instead for a pay-as-you-go plan. (SolarCity's plans also include repair, monitoring, and support services.) This approach will cost SolarCity, still a young company, in the short-term, but the name of the game with solar at this point is getting more customers to install solar energy systems. SolarCity is focused on the long-term strategy of gaining customers with relatively inexpensive solutions, while seeing the entire process through from design to monitoring of each customer's solar setup.
Solar installations will not result in immediate cash on the books, especially with SolarCity's model; rather, solar payments occur over the life of the solar panels (up to 20 years). Put simply, these are returns that will reward SolarCity more in the long run rather than in the short-term. SolarCity's management calculates "retained value," a metric that estimates the discounted present value of future cash flows from its solar installation projects after subtracting all installation, repair, insurance, and investing costs. In other words, retained value is a present value estimation of the cash that will be retained by SolarCity. Management currently estimates retained value to be at $846 million. This number increases as SolarCity installs new systems and gains more residential and commercial customers.
Another plus comes on the cash flow end, where SolarCity has seen major improvements over the past couple years. Operating cash flow was $18.08 million in 2011 (-$283.62M FCF), $60.33 million in 2012 (-$388.73M FCF), to $182.94 million so far in 2013 (-$330.58M FCF). The company's capital expenditures are, understandably, very high and explain the negative free cash flow at this point. However, the company's cash flow production is quickly increasing.
SolarCity is rapidly expanding. In the most recent third quarter, SolarCity deployed 78 megawatts, a 109% year-over-year increase. The Residential segment saw an increase of 151% in megawatts deployed. Going forward it is critical that current investments help decrease costs, bring in new customers, and increase cash flow retained by the business.
CEO Lyndon Rive's goal is for SolarCity to have 1 million solar rooftop customers by 2018. As of August, SolarCity had 68,000 customers (I believe that number is now above 80,000, but am still trying to find the latest figure from the 3Q results). This is an ambitious company, backed by two young and dedicated founding brothers and Elon Musk, one of the most innovative technological (and business) minds in the world today.
The stock certainly has its fair share of risks, and will likely be quite volatile going forward. I may open a small position after doing some further analysis into the business. If you're looking to get exposure to Musk, though, this currently looks to be a less pricey but equally-ambitious business compared to Tesla Motors.
Here are some key statistics for SolarCity:
Market Cap: 4.74B
Qtrly Rev Growth (yoy): 0.52
Revenue (ttm): 141.81M
Gross Margin (ttm): 0.42
EBITDA (ttm): -68.33M
Operating Margin (ttm): -0.71
Net Income (ttm): -64.66M
EPS (ttm): -1.02
P/E (ttm): N/A
PEG (5 yr expected): -0.85
P/S (ttm): 33.35
ROA (ttm): -4.07%
ROE (ttm): -34.3%
Cash (mrq): 132.99M
Debt (mrq): 316.42M
Op. Cash Flow (ttm): 247.67M [more]
Interesting things ahead for a new Chipotle concept, "Pizzeria Locale," the latest addition to Chipotle's brand portfolio that also includes ShopHouse. Pizzeria Locale is a new fast-casual pizza concept, and this latest move brings Chipotle into the fast-casual pizza market. ShopHouse is a "Southeast Asian Kitchen." Depending on how Chipotle juggles these new fast-casual concepts, perhaps in 10 years the company will be to fast-casual restaurants what Yum! Brands is to fast food restaurants today. [more]
I see a bright future for Domino's Pizza (DPZ) and recently purchased shares of the company. My two-part analysis of why I invested in Domino's is included in full below. [more]
SodaStream (SODA) is a stock that has received some regular coverage in Fooldom. Steve Symington recently wrote a nice piece about the company (http://www.fool.com/investing/general/2013/12/06/why-i-just-...), whose stock has fallen to $53.33 from a 52 week high of $77.80. SodaStream is valued at $1.1 billion and is making headway with its "home carbonation products" -- products that essentially allow people to make carbonated drinks/sodas in their home.
SodaStream has a unique concept that appears to have gained popularity over the past several years. The company markets its products as "green" -- no longer the need to have soda cans pile up when you can make your own sodas at home -- as well as offering savings for regular soda drinkers. The stock got hit after reporting 3Q 2013 results on October 30, even though the company maintained its guidance of expanding revenue 30% and net income 23% in 2013:
My main concern, just looking at the surface, is SodaStream's struggle to produce positive cash flow this year. Over the past several years the company managed to increase operating cash flow annually, but so far in 2013 SodaStream has produced -$16.73 million in operating cash flow. Operating cash flow did increase the most recent quarter, so perhaps the first two quarters of this year were simply a deviation from the norm.
Still, the financial prospects of SodaStream seem to remain intact despite the most recent quarter. This year the product has seen continued sales particularly in the Americas and in Europe. With a P/E around 22.5, SodaStream shares look to be at appealing levels.
At this point a key question is whether the company's products are a passing fad or a viable long-term market. I lean toward the latter the more I research SodaStream. SodaStream offers a healthier, eco-friendly, and financially efficient product compared to traditional soda cans. Of course, the flavor of SodaStream's "caps" may not yet fully compare to a can of Coke, but the quality and variety of SodaStream favors seem to be improving.
SodaStream is another intriguing company that may be trading at a bargain today. The company's sales over the last few years are impressive, and management remains confident with guidance for this year as well. A lot will hinge on the company's upcoming 4Q 2013 results. The stock has been walloped a good amount over the past 6 weeks, though, which makes it tempting to open a position at current levels. I will dig into SodaStream a bit more as time allows. [more]
Noodles' executive management team has a combined 25 years of experience with Chipotle. This, combined with Noodles' niche fast-casual concept, profitable growth, and cash flow generation, could propel the long-term success of the business and reward patient shareholders of Noodles. I will likely open a position in Noodles should the stock take a hit from current levels.
Chairman and CEO Kevin Reddy, who joined Noodles in 2005, has had a lot to do with that success. When Restaurant Business magazine named Reddy the Entrepreneur of the Year in 2009, the magazine observed that Reddy had "assembled a management team that together has bucked the recent industrywide inclination to hunker down and play defense" since taking the helm of Noodles in 2005.
Just who else makes up this management team? For starters, it is important to note that Reddy joined Noodles after spending seven years in various leadership roles with Chipotle, including chief operating officer, chief operations officer and restaurant support officer. (Reddy also spent fifteen years with McDonald's) But the Chipotle connections do not stop there.
Keith Kinsey, Noodles' Chief Financial Officer and Chief Operating Officer, also spent five years with Chipotle before joining Noodles with Reddy in 2005. Kinsey served as Chipotle's Pacific Regional Director, playing a leadership role in Chipotle's operations and expansion on the West Coast.
In 2009, the Denver Business Journal named Kinsey the CFO of the Year, noting Kinsey's work ethic, experience with both finances and operations, and a commitment to personal integrity and business vision. "From a character perspective, integrity is important," says Kinsey, "and from a business perspective, vision is important."
Finally, Phil Petrelli, Noodles' Executive Vice President of Operations, spent thirteen years with Chipotle before joining Noodles in 2012. While at Chipotle Petrelli filled a variety of operations positions, most notably as Regional Director for the Northeast Region where he oversaw 268 Chipotle restaurants.
These three gentlemen bring to Noodles & Company a combined 25 years of experience from Chipotle. This is significant because Chipotle is arguably the success story of the restaurant industry, and particularly fast-casual restaurants, over the past decade.
How Noodles & Company Can Grow Faster Than Chipotle [more]