Elon Musk’s Daredevil Antics Add Risk to Tesla Shares

Elon Musk just did something Tesla (Nasdaq: TSLA) shareholders have good reason to worry about. Musk just strapped himself to the top of a biplane and went for a joy ride in the sky. The daredevil stunt (see video) may play well for his legendary status as a young eccentric genius and playboy jetsetter but it is probably unfitting for the CEO of a $30 billion company. If God forbid something went wrong, TSLA shares would have been critically displaced and billions of dollars in market value would have gone with him.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The departures of some corporate leaders are actually celebrated by their shareholders. For instance, when McDonald’s (NYSE: MCD) embattled CEO Don Thompson said he would walk away earlier this year, the stock jumped 3%. However, Tesla’s shares have performed far better than McDonald’s shares over the last several years. TSLA is still up approximately 10.6% year-to-date despite recently soft production guidance given at its earnings report.

Furthermore, the iconic Chairman and CEO of Tesla Motors (Nasdaq: TSLA) is as important to his company and its shares as arguably any CEO today. So when he plays daredevil, the shares are likely to take a hit. If he had died in the stunt, which he thankfully pulled off, the shares of Tesla would very likely have seen their valuation permanently impaired as well.

Musk is integrally tied to the company he co-founded, Tesla Motors. The importance of Musk to the organization is evident in his extensive title alone: Co-Founder, Chairman, Chief Executive Officer and Chief Product Architect. That’s four critical roles he fills for the company. He is the visionary behind Tesla’s founding, and so its evolution is presumably following a path he envisioned. If that role were passed forward to another person at this point, certainly Tesla’s historic development from dream to reality would be overshadowed by questions about how it might proceed without Musk. That is exactly what happened to Apple (Nasdaq: AAPL) shares after Steve Jobs died.

As Chairman and CEO, Musk has played a critical role in the operational efforts and progress of Tesla; would another person fill those roles adequately? And who would have confidence in another chief architect considering how well a job at it Musk has done? The Model S has been named Motor Trend Car of the Year and Best Overall Car by Consumer Reports for two years in a row. So if overnight these four critical roles for Tesla were suddenly vacated, left empty by the sudden and tragic death of a visionary of this age, how do you think TSLA shares would react?

Day Chart of TSLA Against that ofthe QQQ

TSLA would have tanked Monday morning had a tragedy occurred. TSLA shares actually did open lower Monday and suffered into midday while the shares of the PowerShares QQQ (Nasdaq: QQQ), which tracks Tesla peers in the Nasdaq-100, opened higher and traded steadily in the green on the day. While TSLA has been under pressure since reporting its earnings last week, its shares had stabilized. Monday’s trading may be indicative of a realized risk being incorporated into the valuation of Tesla shares given the death-defying stunt of Musk over the weekend.

Elon Musk is a special sort of CEO, a nonconformist and we love him for it. Though, in this day and age of younger CEOs at companies like Google (Nasdaq: GOOG), Facebook (NYSE: FB) and GoPro (Nasdaq: GPRO), I suppose we might expect to see more CEOs take similar risks. So perhaps because of Musk, the contracts of CEOs will in the future contain clauses requiring the non-participation of the executive in risky behavior. The contracts of well-paid and team-critical professional athletes contain such clauses, so corporations would be taking the lead from that precedent. I’m sure such clauses already exist for some, but obviously not in this case.

Having Musk sign such a clause would serve two value-added purposes now. First, it would serve to reassure Tesla shareholders that he won’t be taking such risks in the future and perhaps restore any value discount that might register because of it. Secondly, it might help Tesla to realize its full potential over the next decade or two. If I were a Tesla shareholder, I know I would rest easier.

There’s just one problem. The penalty to athletes for injuries sustained while participating in restricted activities is adjustment to their otherwise guaranteed salary. Does Musk even care about having his salary penalized for skydiving or whatever he may choose to do? He is growing his wealth with the share price appreciation of Tesla and his other investments, and he has a good deal of wealth already safely set aside. And I’m not even sure the guy cares about money to begin with. Thus, all Tesla shareholders can do is pray and maybe hope Musk gets into less risky games, like say playing bridge with Warren Buffett and Bill Gross. I follow Tesla and other iconic ideas of the day, and invite interested investors to follow my column here at the Wall Street Greek blog for updates.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Exxon Mobil (XOM) – What’s Most Relevant

Exxon Mobil (NYSE: XOM) reported its quarterly results Friday, noting a sharp decline in earnings due to lower energy prices. The company, its shares hammered this year by sharply lower energy prices, guided investor attention to 4 key points. The points were that despite bearing lower energy prices, Exxon Mobil is: meeting operating and investment goals; benefiting from its integrated operations through the diversified revenues of its downstream businesses; growing production impressively and importantly; and still generating significant cash flow and positive free cash flow. So, it intimates, you should ignore its 51% drop in quarterly earnings and instead look to its potential in a different pricing environment, which is implied will exist. Toward that end, the company offered some important reminders about the global demand outlook. It also strongly reminded investors of its always-on cost reduction focus. I’ll remind investors of the company’s ability to capture high grade production at better value today with its strong balance sheet. Exxon Mobil has diversified integrated operations that increasingly allow it to level off the costs and benefits of production and feedstock, though still imperfectly. Given its shareholder value focus, ability to capitalize on what for many others is an extremely treacherous environment, and with an energy outlook that isn’t so terrifying to me, I see XOM as a must buy on current share weakness. Still, I advise investors to add XOM and other energy stocks to holdings carefully now, in increments, while prices likely remain volatile near-term. See my full report on Exxon Mobil (XOM) here.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

ConocoPhillips (COP) – You Better Bet Your Life

If you’re placing a bet on the nation’s leading independent energy exploration & production company today, you had better bet your life you are placing a bet on a turnaround in energy prices in the current environment. ConocoPhillips (NYSE: COP) recently reported its second quarter results, and really only one thing mattered, the difference in the company’s total realized price per barrel of oil equivalent (BOE). It looks as if the company can manage the burn if oil prices stay at current levels. Meanwhile, it just raised its dividend and assured investors it was safe; the dividend yield is a stabilizer for the stock today at 5.7% for as long as investors mostly believe in it. The company rightly notes that the price of oil is out of its control, but there are factors within its control. ConocoPhillips, as the world’s most important independent E&P, stands to benefit from the failures of smaller marginal players, some of which will have important assets to sell cheap today and tomorrow. Given this company’s current production positives and its ability to manage cash flow, and my expectations for oil price recovery either later this year or in 2016, I see COP primed for long-term investment today. More nimble risk takers might wait a month longer for a potential capitulation of oil prices ahead of the September Fed meeting and as China continues to weigh. See my full report on ConocoPhillips (COP) here.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

GoPro (GPRO) is a Strong Buy – Wisdom of a Seasoned Analyst

GoPro’s earnings reports, this one and the ones that follow it, will force investors and analysts to more closely consider this company’s fast moving and significant operational progress, including over the past 3 months. GoPro, trading today just 14.8% above where it did after last quarter’s EPS report, still does not even reflect the significant 50% increase in EPS guidance given last quarter. The stock’s value also appears to still be inadequately incorporating the importance of the company’s progress in China and entry into the drone market. GoPro has also introduced new products, partnerships and revenue streams that should drive expanding earnings in the quarters and years ahead, and those are missing in terms of earnings expectations and stock value adjustment. I anticipate that the company’s earnings results, not just this quarter but also moving forward, will incorporate this value-added operational progress and drive analysts to raise EPS estimates and price targets, force previously negative business media coverage to turn strongly positive and compel investors to buy GoPro (Nasdaq: GPRO).

When last we heard from GoPro (Nasdaq: GPRO) on its earnings at the close of trading on April 28th, it opened the next day 10.6% higher, and closed at a price of $52.96. Since then, the stock rose to near $60 before being weighed down once again by general market concerns around China that also impacted the likes of Apple (Nasdaq: AAPL). While the stock closed on July 20 at $60.80 and is looking to move higher as I write this morning, the 14.8% move since April 29 still does not reflect the significant progress GoPro has made this quarter. Watch out, because the stock appears to be about to do so and potentially join the high-flying momentum names on their run higher given reduced Fed expectations. In my estimation, the appetite for growth in the form of Facebook (NYSE: FB), Netflix (Nasdaq: NFLX), Amazon.com (Nasdaq: AMZN) and Google (Nasdaq: GOOG; Nasdaq: GOOGL), could also include GoPro on the menu soon.

I started authoring this article after GoPro reported its impressive results last quarter, but did not complete it due to my busy schedule and activities. At that point, the story read, “GoPro is Worth $67.50 Right Now”. The basis of that opinion was a simple calculation. The company raised its second quarter guidance by 50% after impressively beating Q1 estimates by 33%. At the time of my analysis, a 50% increase in full year EPS estimates would justify a 50% increase in stock price if the P/E ratio were to stay the same.

Obviously, P/E incorporates future expectations and so a perfect price adjustment might not always be justified. But in the case of this stock, where the burden of its share lockup expiration, a significant short interest and overwhelmingly negative business media perspective (I watch CNBC a lot) had brought the shares down from a height of $98.47 over the last 52 weeks, well the setup was different. A simple price adjustment of 50% at the time should have had the stock trading at $67.50 immediately in my opinion. Operational execution this quarter should serve to get the stock there, if not higher.

Since that last report, GoPro shares faced rising concern around China and the shares drifted lower as a result. Business writers and analysts failed to see the correlation in the case of GoPro, where they saw it for Apple (Nasdaq: AAPL), and I apologize for my schedule and not informing you sooner of the relationship. GoPro’s recent earnings performance and expectations were lifted by its China growth. The decline in the shares in correlation with China softness did open up an important renewed buying opportunity in the shares that I hope you took advantage of.

There is a real risk that a slowing China economy could impact GoPro, but its business is so new in China and the market opportunity so important, that it would be premature to assume a sudden drop in the mainland China stock market would immediately impact demand for this high-profile and strongly branded product. Still, I have my eye on this issue this quarter and will be interested to see what the company says. Be careful, though, not to read too much negative into any company caution that is not reflected in the astounding pace of its China sales. Cautionary words are often simply precautionary.

While we are covering risk here, I’ll get to my greatest worry with regard to GoPro. Oftentimes management teams of new companies will make novice mistakes. They can mismanage investor expectations and make other errors you hardly ever find at blue chips that have been around for decades (excludes Enrons of the world). That is why you need seasoned management mixed in with the visionary founders to help stabilize the fast moving vessel.

This quarter will go a long way toward confirming confidence in the management of GoPro if they can execute on their strongly raised EPS guidance of last quarter. I’ll admit that after the 50% increase in EPS estimates, I worried the company might not have left enough cushion to cover. It is important for high flying growth companies with circling skeptics to under promise and over deliver (UPOD). I’ll nervously watch for delivery this quarter as a result, and hope pride did not lead management, beaten back by previous criticism and stock underperformance to over promise. And let me also say that if the operational results miss by a penny on a 50% raised EPS estimate, it would be foolish to not still bid the stock up; it would mark a buying opportunity if it did anything other than gain on the news. You, as a long-term investor, must focus on the long-term and put the results, growth, future prospects and valuation into proper perspective and not focus on pennies here or there (a little wisdom from a seasoned stockpicker).

Now that I’ve gotten the risks out of the way, let me finish with why I love GoPro (GPRO), my favorite momentum name of 2015, now more than ever. The stock is now about where it was when I authored that report at the start of the year, and I think ready to prove me right.

Besides still growing strongly in the U.S. and expanding significantly overseas with its cameras, importantly including in China, GoPro has been extremely active in expanding its prospect profile this past quarter (this interview of Nick Woodman covers it well). Despite management’s initial disagreement with my view that entry into the drone market was a necessity, GoPro said this quarter that it would enter the drone market in 2016. In 2015, Goldman Sachs says the market for drones is $1.4 billion, and it should triple by 2017. That growth is mostly thanks to the energy GoPro has charged into the market through the incorporation of GoPro cameras with drones to produce spectacular new content. GoPro’s share of the drone market could be tops by 2017 because of its brand appeal and bundling with its cameras. The stock hardly budged on the news, and this is a company that’s only supposed to make $1.9 billion this year selling cameras alone.

And with regard to its main line of products, cameras, GoPro has not stopped innovating nor partnering with important content incorporators and producers. After acquiring virtual reality specialist Kolor, GoPro announced a partnership with Google (Nasdaq: GOOG; Nasdaq: GOOGL) to produce 360 degree content for use in Google’s virtual reality market plans. Expect that camera rig we all saw initially to get spherical and cooler eventually, and to combine with Kolor’s image stitching to make for fantastic new content. And why won’t it eventually be matched up with Facebook’s (NYSE: FB) Oculus as well?

We know about GoPro’s partnership with the NHL; I can envision a day when every player in every major sport wears a camera on his head (likely tiny and unobtrusive) and gives the sports fan amazing on-demand content from every possible perspective. You can bet it will be GoPro’s camera onboard.

Yesterday, GoPro gave its users and prospective users even more reason to own and use its products when it launched its premium content and licensing portal. Now, the content you produce could be easily used by major media, for which you will be compensated in an efficient and fair manner. And in case you missed it, Toyota (NYSE: TM) just partnered with GoPro to put its cameras on certain vehicles. Toyota provides the mount for the camera you buy separately, but I can see dealers throwing it in as an incentive. I see this as the start of something big, universal even, but I’ll get into this topic in a follow up article, as it’s too big to break down to a sentence or two.

All of these initiatives are reasons for P/E expansion in GPRO shares, and yet it has not seen that expansion. I believe that as GoPro executes on its operational aspirations and produces the exceptional earnings it is expected to, investors will reward the shares by bidding it up. And as the company takes these early efforts and partnerships to the next level, the stock’s P/E will expand.

When the company raised its second quarter guidance, estimates jumped up to the new level, but full year figures did not equally adjust. Therefore, the full year P/E estimates for this stock are likely understated. That is impetus for share appreciation in and of itself. As a result of poor incorporation of the company’s new business efforts and growth, this stock appears to trade at 31X 2016 EPS estimates. I used the estimate to estimate EPS for the next 12 months, June to June, and have a figure of $1.81 for that period. The shares trade at 33.5X that figure. Given estimated 5-year growth of 30%, which I view very reasonable, the stock trades at a PEG value of 1.1X. At that level, simple execution means this stock appreciates at 30% a year, but I view the EPS estimates as grossly understated due to poor analyst incorporation of this company’s recent operational execution and growth efforts. In other words, in my view, GoPro is a back up the truck type of buy today. And if for some reason it missed Q2 EPS expectations by the time you read this report, I would suggest it’s a buy a bigger truck to fill with GPRO shares today. I follow GPRO closely and have a long interest in the company, so relative parties may find value in following my column here at Seeking Alpha.

Disclosure: Kaminis is long GPRO. Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.