XONE (3-D printers, strongly recommended by MF)
I’ve written previously about WPRT (Westport) at length. I think my real gripe though, is about companies that are losing great gobs of money, have little or no chance of even breaking even any time soon, and get recommended my MF, often with Buy Now’s after the initial recommendation. I happened across this note I had written on the XONE board on MF RB back on July 11, 2013, before the market opened. I had initially taken a little watch-and-see position and then sold out.
“…here are my remarks on why I’m not in XONE: I sold out because I thought it was rising to ridiculous levels for a company which has never made a profit, on hopes that it will be acquired, which didn’t seem like a safe reason to stay in it. I may be wrong. It has good technology. It may be acquired. They may make a large profit this year. But… they lost $28 on every $100 of revenue last year. It cost them $128 to make each $100 of revenue. That’s horrendous! It’s hard to see how that is going to turn around to a vastly profitable business quickly.
Think of it this way: Say their cost of goods sold is 50%. That means their $100 in sales has to go up $56 (or 56%) to $156 to use up that $28 in losses and even break even. But… to do 56% more business, their SG&A overhead will have to go up by… say 20%. And they may need more Capex to get more equipment and buildings to build more machines, and they’re still far from being back to zero, break-even.
I try to avoid companies that are going to break even “next year”. You guys may make a mint on it, and more power to you, but there are a lot safer companies in RB for me to put my money in…
I posted the following on the Tesla board in early June after the incredible run-up (to $105), when everyone on the board was saying they were waiting for a drop to $50 to $70 to buy in, or were selling to buy back $30 lower.
I hear lots of people who think TSLA price is way too high.
I hear no one say it’s too low.
I hear lots of people saying they expect an imminent correction to $50 or $70, and they’ll buy then.
I hear no one, NO ONE, saying they think the price will shoot up to $150 or $200 any time soon.
To me that doesn’t sound ANYTHING like a correction is coming. It’s almost classic. I’d be a lot more worried if everyone was sure the price was about to shoot up $50.
My bet is no correction, and a period of consolidation roughly between $89 and $110, before another leg up, depending on positive news (or rumors).
I hit it right. That is just what happened. On this board (XONE), it’s exactly the opposite. Everyone is euphoric, saying they are up 100% or 60% and are holding forever, or until RB says sell. Almost no one on this board is worried. To me that’s the sign of a top, the handwriting on the wall. No one here is listening.
XONE is priced for perfection. Any minor disappointment and you could see a crash like we saw two days ago in ISRG when it was down $95 intraday, and finished down $80 in a single day. That crash wasn’t because they preannounced a disaster. They just preannounced that revenues were “only” going to be up 5% for the quarter.”
As you can imagine, I wasn’t too popular on the XONE board. Well, what happened? XONE opened that day at $71.00. It’s now at $14.05.
XONE lost just over 80% of its value since I wrote that. It’s still a buy on MF.
The message is: Avoid companies that are losing gobs of money. No matter how good the story. Unless they are growing revenues like mad.