1/25 Daily Market Note: Tesla into Friday.
Let's see how low Tesla can go
Note: Thank you to Interactive Brokers for being my partner Brokerage where we get 4.8% Yield on Idle Cash which accrues daily until the Fed cuts rates.
Morning Everyone - this note is sent out earlier today and will be brief so that I can share thoughts on Tesla.
My read of the earnings outcome on Tesla was that it wasn’t overly inspiring for investors looking for clarity on its FY 2024 outlook. Most important to Wall Street is that price cuts are likely to weigh on margins, and financial models place heavy sensitivity on EBITDA margins in Discounted Cash Flow models. When margins are cut by even a few percentage points, this can have an outsized impact on the terminal value of a company’s forecasted cash flow present values.
The post-market reaction of -9-10% is a representation of lower visibility via a Higher Discount (WACC) Rate, lower EBITDA forward margins, and potentially lower revenue growth projections.
This sell-off is fundamentally justified from a DCF Modeling standpoint.
Moving onto how Traders can look at the situation and find pockets of opportunity, I’ll discuss below.