Avoid This $2 Trillion Trap Door
Submitted by QTR's Fringe Finance
The market and retail investors are being led, like deaf, dumb and blind horses toward water, to a $2 trillion trap door that I’d personally be avoiding at all costs this year.
I’m, of course, talking about the forthcoming SpaceX IPO.
If SpaceX does go public in the near future, and if the chatter about a $2 trillion valuation is even close to accurate, I want no part of it. A valuation like that would place the company among the most valuable businesses on earth almost immediately, which is an absurd place to start for any IPO, let alone one in a capital-intensive business like rockets, satellites, and broadband infrastructure.
I understand the appeal. SpaceX is an impressive company. It has accomplished things that once looked impossible and helped renew interest in space in the United States — but that does not make it worth $2 trillion.
Elon Musk has an undeniable track record of dragging futuristic ideas into reality often enough that betting against him has been painful for plenty of people. But that history is exactly why I think it is important to be explicit here: this is not a prediction that SpaceX will fail. It is simply a statement that at anything close to a $2 trillion valuation, the risk-reward looks completely deranged.
I feel similarly about Tesla, and I have for a long time. I should start by admitting something that anyone writing critically about Musk-related companies probably has to acknowledge up front: skepticism has often been financially punished. Betting against Tesla has historically been a losing trade. Skeptics have been wrong for more than a decade when it comes to price, and many very smart investors have shorted the stock with great conviction only to watch it continue climbing anyway. Conversely, many idiots once did extremely well owning Tesla.
Tesla has somehow repeatedly defied conventional valuation frameworks and traditional industry comparisons. For whatever reason, it has managed to operate outside the rules that usually apply to public companies. That history matters, and it is why I approach all of this with some humility.
Compared with other giant technology companies, its valuation remains an extreme outlier. Within the so-called Magnificent Seven, Tesla’s pricing has long looked ridiculous next to companies like Alphabet, which produce enormous profits while still trading at far more conventional multiples. Tesla’s current valuation continues to...(READ THIS FULL ARTICLE HERE).