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Thread: What is a growth stock? How do you value "growth" companies?

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    Default What is a growth stock? How do you value "growth" companies?

    I think you guys know I'm a pretty old-school thinker when it comes to investing. So I'll proclaim my ignorance when its comes to "new-economy" style companies. Uber and Tesla are good examples. Neither one has ever run a profit, and honestly, neither one is even close to doing so, but their combined market capitalization are over $90 BILLION DOLLARS. How the hell does that work? Companies used to be worth the value of their cash flow plus assets, but if that was the case both these companies would be worth $0.

    Is this a case of there being true value that's not captured with my simplistic thinking, or are all investors just assuming that they'll be able to sell in the future to another eager buyer, kind of a "greater fool" theory?

    It all looks like tulipmania to me.
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    Quote Originally Posted by ExtraSlow View Post
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    I think you guys know I'm a pretty old-school thinker when it comes to investing. So I'll proclaim my ignorance when its comes to "new-economy" style companies. Uber and Tesla are good examples. Neither one has ever run a profit, and honestly, neither one is even close to doing so, but their combined market capitalization are over $90 BILLION DOLLARS. How the hell does that work? Companies used to be worth the value of their cash flow plus assets, but if that was the case both these companies would be worth $0.

    Is this a case of there being true value that's not captured with my simplistic thinking, or are all investors just assuming that they'll be able to sell in the future to another eager buyer, kind of a "greater fool" theory?

    It all looks like tulipmania to me.
    At some point, quarterly financials matter and speculation less and less. When that day comes and they don't deliver to the hype, you will see the fall.

    Those are my brief thoughts for now.
    We are slowly seeing this in the early stages of the MJ sector as an example.

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    There’s a 200 page Tesla thread that discusses this haha.

    I’ve bowed of it for almost a year. Been too busy to follow it these days.
    Originally posted by SEANBANERJEE
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    Quote Originally Posted by rage2 View Post
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    There’s a 200 page Tesla thread that discusses this haha.

    I’ve bowed of it for almost a year. Been too busy to follow it these days.
    Yeah, the Tesla thread is messy as hell and I was hoping anyone who actively invests in "new economy" stock could explain it.
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    So people are basically speculating that these companies can grow even further and eventually turn profitable. And at the end of the day stock investors only care about the stock price so even if it’s a bubble and they know it, if they still think they can profit they’ll pour more money in until the end.

    Tesla: The electric car market is growing and Tesla is quite far advanced in that game. Theyve struggled to ramp production but they also have some key leads in battery tech and their charging networks. There are multiple routes this can play out. One is they keep growing as a car manufacturer and eventually release economy cars to the mass market and try to establish themselves and try to take on the big 3 for the North American market. But the second option is they also have a lead in battery / charger / drivetrain tech including their gigafactory; so there is still always the possibility that they become just the electronics / brains behind the EV movement. Think about if Ford, Chevrolet, Dodge and Honda all partner with Tesla to use their drivetrain and tech in their cars. They could corner the market because if every charging station uses their plugs then everyone wants to buy a car with one. (Way less likely option because they want to be a car manufacturer ... but it’s still a option for a pivot) Either way, there’s still a lot of room for growth and then profits.

    With Uber it’s a bit different route. They are heavily investing into self driving cars. They lose money on their uberX rides overall and they know it, but they also are focused on trying to enter as many markets as they can to dominate the rideshare market. If/when they can come out with self driving cars all of a sudden they don’t have to pay drivers anymore. A car they own and only cover maintenance for is substantially cheaper than paying contractors a mileage rate. So this could make for a huge shift into profitability
    Last edited by pheoxs; 10-05-2019 at 08:18 AM.

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    So for uber, they are betting that a) they'll build an autonomous vehicles and b) those vehicles will be permitted in enough markets?
    Wow, that's a bet I won't take.
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    Quote Originally Posted by ExtraSlow View Post
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    I think you guys know I'm a pretty old-school thinker when it comes to investing. So I'll proclaim my ignorance when its comes to "new-economy" style companies. Uber and Tesla are good examples. Neither one has ever run a profit, and honestly, neither one is even close to doing so, but their combined market capitalization are over $90 BILLION DOLLARS. How the hell does that work? Companies used to be worth the value of their cash flow plus assets, but if that was the case both these companies would be worth $0.

    Is this a case of there being true value that's not captured with my simplistic thinking, or are all investors just assuming that they'll be able to sell in the future to another eager buyer, kind of a "greater fool" theory?

    It all looks like tulipmania to me.
    A firm's valuation is simply a reflection of all of its future cash flows (or rather the market's consensus on what those cash flows will be). Existing cash flow is only one way of estimating future cash flows.

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    Quote Originally Posted by ExtraSlow View Post
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    So for uber, they are betting that a) they'll build an autonomous vehicles and b) those vehicles will be permitted in enough markets?
    Wow, that's a bet I won't take.
    Maybe but Tesla already has autopilot, some industrial sites already have automated trucks, combines run automatically with GPS. There’s a lot already happening in the industry.

    Even in lower level cars. A Mazda CX-5 has lane tracking and will turn around a bend for you if you take your hands off the wheel. It’ll also use adaptive cruise to follow someone in city traffic and stop being them at a light. That’s all basic level stuff but it’s already starting.

    Most of that would’ve been crazy talk 5 years ago to be basic packages outside of luxury brands.

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    I think it'll happen, but the idea that when it happens it'll somehow give this one company some sort of profitable competitive advantage seems insane.

    My bet is that as soon as one company has true driverless capability it'll become commoditized within five years.
    Quote Originally Posted by killramos View Post
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