Valuate This! Cinema Showdown; DocuSigned, Sealed, Delivered
Friday Four Play: The “Red, Red Whine” Edition
I’m feeling a bit ranty today, Great Ones. You’ve been warned.
Yesterday, I talked about Chinese electric vehicle (EV) maker Kandi Technologies (Nasdaq: KNDI) and the concerns I have with investing in the stock. One of those concerns is the Holding Foreign Companies Accountable Act, which would delist any U.S.-listed Chinese company in three years unless they agree to supervision by the Public Company Accounting Oversight Board.
(And if you missed that story, click here for a real-deal master economist’s breakdown by my friend Ted Bauman.)
But it’s neither the act itself nor Kandi’s issues that made me itch today.
It was a particular vein in reader responses supporting this legislation that set me off. I’m paraphrasing several comments into one, but the gist of the concern goes like this: “We need this act because, without it, how can we really tell what Chinese companies are worth?”
In other words, many investors worry about valuations for stocks like Kandi, Nio, Alibaba or JD.com.
Forgive me, but I find these concerns absolutely hilarious! With all the irrational exuberance in the U.S. market right now, Chinese stocks are where we draw the line?
I mean, Tesla (Nasdaq: TSLA) trades at a price-to-earnings (P/E) ratio of 1,137! The stock is literally valued at more than 1,000 times its earnings. And Tesla’s P/E ratio isn’t alone:
- TAL Education Group (NYSE: TAL): 1,715.
- MicroStrategy (Nasdaq: MSTR): 1,630.
- CyberArk Software (Nasdaq: CYBR): 1,514.
- Square (NYSE: SQ): 314.
- Zoom Video Communications (Nasdaq: ZM): 286.
Valuation? Don’t talk about valuation. Are you kidding me? Valuation? Just look at those P/E ratios, for heaven’s sake!
Yes, something needs to be done to make sure Chinese companies aren’t frauds. However, if investors were really concerned about valuation, they wouldn’t gripe about Chinese stocks alone.
I know why many Great Stuff readers gripe about Chinese stocks. I get the “Rah, rah, ‘Murica!” mindset. I really do. And I support it to a degree.
I live here and invest here, after all. This is my country, and I want to see American companies excel. I want to see Americans excel. It’s a matter of pride … of patriotism.
However, in the words of Tombstone’s Doc Holliday: “My hypocrisy goes only so far.”
Don’t say you’re concerned about Chinese stock valuations when Virginia-based MicroStrategy trades at 1,600 times earnings. We all know the truth of the matter.
And the hard truth is that valuation is dead.
Stocks trade on popularity — on memes (and yes, I realize the irony of that statement).
They trade on supply and demand — which is silly because supply is artificial in this instance. Companies make more stock out of thin air all the time, and it doesn’t take Chinese obfuscation to pull that off.
Furthermore, the rise of Robinhood and Reddit’s r/WallStreetBets directly correlates to this. The financial media likes to blame these two for the current state of ridiculous stock valuations. But they aren’t the problem — they exploit an existing problem.
That is, if you consider out of control valuations a problem at all.
Everyone’s making money, so what’s the problem? Who cares if Tesla trades at more than 1,000 times what the company earns? I bought the stock. It went up. I made money. Where’s the problem?
We don’t have the time or inclination to go into the economics behind why this is a major problem or why it is completely unsustainable. However, it’s clear that, at some point, Wall Street, the Federal Reserve … someone must act to correct ridiculous stock valuations.
It’s either that or we admit that corporate financial statements mean nothing when it comes to stock prices and that it’s not really lack of oversight that bothers us with Chinese stocks.
Then we’re all back to trading baseball cards in the ‘90s, right?
And now for something completely different, here’s your Friday four play:
No. 1: The Asteroid Is Coming
AT&T (NYSE: T) shocked the world yesterday — shocked, I say!
Its WarnerMedia announced that all its 2021 movies would go straight to HBO Max on the same day they hit theaters. The Matrix 4? Straight to HBO Max. The really interesting Dune remake? Straight to HBO Max.
Now, these movies won’t stay on HBO Max indefinitely. Subscribers will have one month of exclusive access before they must go to the big screen to watch.
But that one-month time frame scared the utter bejesus out of AMC Entertainment (NYSE: AMC). So much so that the world’s largest movie theater chain is holding “urgent dialogue” with WarnerMedia.
“Clearly, WarnerMedia intends to sacrifice a considerable portion of the profitability of its movie studio division, and that of its production partners and filmmakers, to subsidize its HBO Max startup,” said AMC CEO Adam Aron.
Well, duh, Aron. AT&T has actual content that it can give away. It’s a great way to incentivize HBO Max signups. Where’s your content, Aron? That’s right. AMC doesn’t have any!
I’ve sounded the warning bell on theater stocks like AMC for a while now. But the pandemic has sped up the decline of theater companies. Theaters sell an experience, not a movie. They make their money on upgrades such as better seating, food, drinks, popcorn, etc.
Ironically, without the movie … there is no experience.
Furthermore, home theaters are so advanced these days that you might as well watch from the comfort of your own home. It’s cheaper than taking out a home loan for a large popcorn, and you can tell family members to stop talking during the film much easier.
Mark my words: Theater stocks like AMC will never be what they once were. I don’t think they’ll go away entirely, but you can bet some survival-based consolidation is coming to the sector.
AMC shares fell more than 20% following the news.
No. 2: I Still Don’t Get It…
Maybe I’m old. Maybe it’s a generational thing.
But I still don’t get Carvana (NYSE: CVNA). I mean, buying a car completely online? No test drive? No walkaround to kick the tires, so to speak?
No checking to make sure a used car isn’t repainted? No hidden interior issues?
Apparently, I’m one of the only investors who doesn’t get it.
CVNA is up more than 160% this year, and the company’s business is booming. So much so that Jefferies initiated CVNA with a buy rating and a $300 price target today — a 26% upside from current levels.
To Jefferies, Carvana will benefit from “easy comparisons amid the coronavirus pandemic.” In layman’s terms, that means that the company will have better sales next year compared to 2020’s pandemic-riddled mess.
Clearly, I’m not Carvana’s target market. But it’s also clear that such a market exists, and it’s rather sizeable.
I do understand the need to disrupt the old-school way to buy a car. There’s nothing worse than spending all day in a dealership haggling prices. It’s why CarMax (NYSE: KMX) is part of the Great Stuff Picks portfolio.
Carvana clearly resonates better with investors right now, given that KMX is up only 10% this year.
Tell me what you think, Great Ones!
Have you bought a car online or traded CVNA? Email me your opinions on Carvana, CarMax or the current state of car buying. I’d love to hear all about it: GreatStuffToday@BanyanHill.com.
No. 3: Sweet Re-Lease
I DocuSigned, and it opened up my eyes — I saw the sign! I saw DocuSign’s (Nasdaq: DOCU) earnings … and it opened up my mind.
Who drops Ace of Base on us on a Friday? Seriously, what gives, dude?
Two words: digital contracts. Even if I won’t buy a car online, you can bet I’m signing that lease virtually.
It’s why DocuSign quickly became a pandemic powerhouse — the leading name in signing docs halfway across the country. Leases, agreements, hiring forms, my ever-approaching swarm of student loan documents…
No longer shall homebuyers need to initial half a tree’s worth of legalese printouts!
DocuSign cornered the market for electronic signatures this year. But, much like the work-from-home market, signing all your docs online is a game-changer that’ll outlast the pandemic. And for the same reasons, too: costs and efficiency.
Add to that some contract management services, a dash of business analytic tools and bingo bongo, you can see why DOCU has more than tripled this year. Last night, the company blew it away on the earnings front (again).
Revenue rose 53% to reach $382.9 million, beating expectations for $360 million. And per-share earnings totaled $0.22 to also crush estimates for $0.13 per share. Now that the company’s making inroads on notary services, I only see DocuSign on the up-and-up.
Wait for the stock to pull back from today’s 6% jump if you’re looking for a way in.
Editor’s Note: Valuation talk aside … we both know you have to invest in stocks that are undervalued before the herd finds them. Duh, right?
But it’s not as hard as you might think. You don’t have to pore over charts or candlesticks or try to find patterns. Not when Wall Street vet Charles Mizrahi reveals exactly how he uses the Billionaire’s Playbook — an incredible resource to target triple-digit gains in as little as 16 months on his best plays.
No. 4: Ladies and Gentleman, I Have Arrived
We’ve already seen a few “going-public” stories this week — least of all the DoorDash dilemma.
The latest excitement? UK-based Arrival, which is using a special purpose acquisition company (SPAC) to go public.
And, as you’d presume, it’s ready to radically change everything we know about EVs. Stop me if you’ve heard this one before…
Here’s the low-down: CIIG Merger Corp. (Nasdaq: CIIC) is already a publicly traded stock, acting as a blank check to go out and find gold in them EV fields. With its target now found, CIIG will merge with Arrival and trade under the ticker ARVL. Clear as crystal!
Obviously, Arrival is far from the only EV SPAC this year. Nikola, Hyliion and Fisker all took the IPO shortcut … to varying degrees of success. And Arrival doesn’t have any vehicles in production yet — shocker.
But where “it’s different this time” … maybe … is the company’s focus on two product lines currently underserved by the EV crop: electric vans and buses, with four total products expected on the market by 2023.
Industry backlogs are already filling up by the likes of United Parcel Service (NYSE: UPS), which preordered 10,000 electric vans for its fleet.
I’m not convinced enough just yet, but Arrival does have more institutional and industry backing than some other EV projects, with BlackRock, Hyundai and Kia — a real motley crew on the funding front.
And the stock got a Jim Cramer sized bump today, soaring 27% after Cramer went on some “son of Tesla” hype fit. Anyway, if you made bank on the SPAC’s more than 170% rally this year, congrats and kudos.
Otherwise, don’t chase this sucker. I like the concept, but you’re looking at a crazy amount of uber enthusiasm with this one — especially when there are far better ways in on the EV market. Click here to learn the inside scoop!
And after you check that out … why not drop us a line for next week’s edition of Reader Feedback? Tell us what you think about electric buses, the death knell for cinemas, how much you hate signing paper contracts — anything goes!
Until next time, stay Great!
Editor, Great Stuff
I’ve been investing for more than 25 years. I started my career on Wall Street in 1991 as an assistant portfolio manager at Bankers Trust. I quickly advanced to prominent positions at Deutsche Bank and ING, managing multimillion-dollar accounts. In 2006, the owners of a $6 billion firm named Kinetics Asset Management recruited me to manage their hedge fund.