Warren Buffett once said,
"that it is wise for investors to be fearful when others are greedy, and greedy when others are fearful”You could be living in a cave with a tin foil hat ... and still be inundated lately with commentators expressing market fear of an impending share market crash. Ever since US 10yr Bond yields rose above 1.5%.
Hey, its not as if they haven't been higher recently. When they rise to over 3%, will be the time to get nervous.
They comment that yields have risen quickly. Rising yields means rising interest rates, which the share market does not like. However, that's not always the case, with yields rising constantly between 2016 and 2019 when the DOW rose from ~16,000 up to ~28,000.
People are suggesting inflation. However, inflation is actually a function of the velocity of money. Money supply is skyrocketing ... but its going nowhere:
Accordingly, Gold (considered an anti inflation play) is falling.
Even Buffett saw his best investment (considered lazy) is a share buyback. He sold some Apple stock even though he loves innovative stocks. Its only innovating done since Steve Jobs passed, are new iterations of its Iphone. I'm sure Buffett would love Tesla stock but for the out of control P/E. Combine Buffett focus with Tesla fanboys and you get:
"Tesla had a P/E of 1,500 and Ganfeng 600. Their P/Es are now down to 1,000 and 360, respectively. PLS with a production rate of 600ktpa and a gross margin above US$300 would justify their share price with a P/E of 20. We justify a high P/E with plans in place to triple production and expectations of further improving Spodumene prices."
I believe in the future of Tesla and Ganfeng as much as anybody but their P/Es were/are out of orbit.
I don't believe PLS fits into this category.Ganfeng has enjoyed manipulating Stage 2 margins but I'm not sure how much longer they can milk that. A P/E of 360 still seems excessive. However, with the demand for Li-ion batteries, they should be able to pass on any raw material input price increases.
Tesla is now below US$600. On the way up , there were plenty of credible commentators suggesting shorting it then. It went to US$900. The problem seems to be, we're living in the RobinHood investor age, with GameStop and Bitcoin the most obvious examples.
Tesla fanboys have well and truly GameStopped their share price. The P/E has fallen from 1,500 to 1,000. Its still wayyyyyyyyyy over the top, even though profitability will rise strongly.
They are not just an EV manufacturer. Their new solar panels which look more like roof shingles, rather than the gaudy display of the current technology, will be a big seller. Combined with LFP based Li-ion battery PowerWalls, another big seller very soon, as Ken alluded to in the last RRS Seminar. Then there's their new battery tech.
Tesla also have perfected their autodrive system which will explode in sales later this year. We all wondered observing futuristic portrayals of flying cars, how they would avoid crashing into each other. That tech has now arrived for self driving EVs. This tech and the ESS, will max Tesla's profitability. Still ... it has to happen.
So what if FANG and other tech stocks share prices drop markedly?
Fundamentally, the underlying business of PLS has not changed and in fact improves everyday. Many would argue a P/E of ~8 would be more appropriate for a mining company ... BUT investment fundamentals have flipped, with Equity investments desirous, given the shrinking market for investment returns. The Shiller graph should be read with this in mind, IMHO. Capital protection is key now. Tesla, GameStop, Bitcoin? Good luck when the music stops. Tesla may still do a SpaceX landing. Tesla is undoubtedly the most innovative stock in the western world but its going to get plenty of healthy competition from China. Its still early days.
The PLS share price has dropped by 90% before. From its ATH, to the 13.5c we hit last year. We've been through this before (but then there were fundamental questions, still to be answered)!
I just don't see it happening again though, as our profitability continually improves and justifies our share price ... unlike Tesla, GameStop, Bitcoin. We may be hit by turbulence, certainly.
It is the responsibility of EVERY investor to make up their own mind of an assets current and future income stream.AIMHO, of course.
(20min delay)