Why Elon Musk's Public Company Stocks Are A Tough Sell - Even At A Large Discount

I fully expect to be asked a lot about SpaceX (SPCX) stock in the coming days and weeks, given that the shares are now trading 50% below the peak ($225) set on the third trading day post-IPO last month. Trading under both the issue price ($135) and the first trade ($150) must present a great buying opportunity, right? Honestly, who knows?

As someone who tries to quantitively value the companies he invests in, I don’t see much “value” even now. After all, the market cap is still sky-high at $1.5 trillion. For comparison, SpaceX completed multiple fundraising rounds in the last year at far lower prices ($400 billion in July 2025, $800 billion in December 2025, and $1.25 trillion in February 2026). So while $1.5 trillion looks low compared with the peak of $3.0 trillion, is it obvious that the company is worth materially more than 2x the December 2025 or 4x the July 2025 figures? Or is it more likely that people were just tripping over themselves to get a piece of the action at each successive opportunity?

We often hear that Musk’s companies (especially the public ones) have cult followings, and I think that is true, even to the extent that the public market valuations never quite make sense. Of course, that does not mean the stocks won’t perform far better than the underlying fundamentals (Tesla’s has, enormously), it just means that there is more long-term risk involved. I think Tesla is a helpful example, as the company has been public since 2010, and I expect SpaceX to see similar shareholder loyalty.

Tesla’s public market history is truly remarkable. Adjusted for two stock splits, the company first sold shares in mid 2010 at $1.13 each (the first day closing price was $1.59). Since then the stock has rocketed 288-fold to the current $325 price. Annual revenue during that time has ballooned from $117 million in 2010 to $94.8 billion in 2025 (an 810-fold increase).

So you might be thinking, “what’s the issue?” For equity investors, profits are what tend to matter most long-term, and on that metric, Tesla’s history is less impressive relative to its current market cap. Between 2010 and 2025, cumulative free cash flow is roughly $21.5 billion. Cumulative stock-based compensation is roughly $15.0 billion, leaving about $6.5 billion of cumulative profits available for equity holders over a 16-year period. We can really only judge that figure relative to the current market cap, which is $1.15 trillion. Simply put, today Tesla stock trades for a stunning 177 times trailing cumulative 16-year adjusted free cash flow.

Okay, fine, but what about current performance? Surely cumulative 16-year profitability is less relevant going forward, right? I would agree. However, in 2025 Tesla earned adjusted free cash flow of just $3.4 billion. That puts the current valuation at 338 times annual free cash flow. Even if we take the company’s best year ever ($6.0 billion earned in 2022), the multiple is still a whopping 191x.

Similar trends seem to happening with SpaceX now that it is a public company. At the average analyst estimate for 2027 revenue of $73 billion (profits are years away), even after a 50% decline, SPCX trades for 20x revenue. Let’s imagine that overnight the company becomes profitable, with margins equal to Tesla’s best year ever (15%). The stock would still fetch over 130 times next year’s earnings.

Let me be clear, extreme valuation does not (in and of itself) mean that SpaceX stock will keep falling from here. In fact, short-term sentiment is quite extreme and could be due to reverse on any good news. However, when a company goes public with a market value of up to $3 trillion, the bar is set immensely high for buyers at that price to earn superior returns in the future.

Comparisons will always be made to Tesla’s stunning post-IPO performance, but keep in mind that Tesla’s first day closing valuation was less than $1 billion. There was a lot of upside potential at that level. SpaceX has a harder hill to climb being valued 2,000 times higher today.

Lastly, you may be wondering if there a price that I would buy SpaceX stock? Honestly, I’m not sure, simply because there are a lot of businesses contained in it that I don’t find particularly exciting (Twitter, data centers in space, etc). But for those true believers in the underlying business long-term, sure, there is a price where the risk is vastly reduced. Personally, 15x revenues would probably be the most I would consider reasonable if I was in that camp. The current projections for 2027 revenue are very wide, as nobody really has a clue what the number will be. But here is the breakdown; at the $73 billion mean estimate (15x sales = $84 per share), and at the $85 billion high end estimate (15x sales = $98 per share). Who knows, if it drops below $100 maybe I will buy some just for fun. :)

Full Disclosure: I have no personal position in either Tesla or SpaceX, long or short, at the time of writing but that could always change in the future without further notice.

Goldman Sachs Stock Prices In Plenty of Fundamental Improvement for IPOs and M&A

The long-term track record of Goldman Sachs (GS) stock since its IPO more than 25 years ago is quite impressive. Given the cyclicality of their business, over the years I have closely monitored the share price relative to underlying book value to help identify periods where opportunistic buying was worth considering. As you can see below, in the past whenever the stock has dipped below - or at least come within striking distance of book value - the shares have been a screaming buy.

With the political environment having become more friendly to business during 2025, the IPO market is perking up a bit, as has M&A activity. So from a fundamental standpoint, GS’s business momentum should be accelerating right now. Interestingly, the stock performance has not only reflected that expectation lately (as one would expect since the market is a discounting mechanism), but it actually appears to be quite overbought based on historical trendlines.

As a result, while I expect the company to post impressive sales and earnings figures in late 2025 and into 2026, the stock price might lag a bit given that it is already pricing in a ton of future good news. I think it is worth sharing this graph now, given just how wide the gap with book value has become. For clients with large positions purchased back in 2022 or even earlier, I am keen on trimming back our holdings a bit into the recent strength, for no other reason that the above data.

Airbnb Stock Today: 10% Below First Day Closing Price in December 2020 IPO

I know it might sound silly these days, but I am of the belief that non-AI stocks can make investors money too. I am quite surprised that Airbnb (ABNB) stock has gone nowhere for more than four years since its IPO. Does this company’s business model and long-term outlook justify a close look at the current $130 price? I tend to think so and plan to start buying some shares soon.

Intel's Out, NVIDIA's In: Most Sentiment-Induced Dow 30 Index Change Ever?

Long-time readers of this blog know that I am always interested when the owners of the Dow Jones Industrial Average (DJIA) announce a change to one or more of the index’s 30 components (do a search for “Dow” on this site to see past articles). Usually it is a very good lesson in sentiment-based investing and happens at a time that will only hurt the index’s future performance (take out the losers and replace them with high-flyers). The latest change announced late last week might take the cake though. Intel (INTC) is out after 25 years and is being replaced by Nvidia (NVDA).

Intel was added to the Dow on November 1, 1999, just months before the tech bubble peaked in March 2000, which is yet another data point supporting the idea that Dow changes can serve as strong contrarian indicators (changes to large indices are mostly based on market cap, whereas since the Dow only has 30 companies, it’s basically a handful of people making a discretionary call on their own).

So where was Intel trading when it was added in late 1999 versus where it is today? On a split-adjusted basis INTC shares closed at $21.99 each the day before being added to the Dow. Now 25 years later, INTC closed at $21.52 just before the change was announced. Sure, there were some dividend payments made to shareholders along the way, but that just means the stock has compounded at barely above zero precent a year for nearly three decades since being added to the Dow.

As if there weren’t enough buyer beware signals for NVIDIA stock already (e.g. massive stock sales by the CEO constantly), this is yet another sign of extreme public sentiment. Much of it may very well be deserved… the question is simply whether all of it is.

U.S. Stock Market Value Concentration Now Narrowest On Record

Do you remember the first time a U.S. listed company reached a market value of $1 trillion? If it doesn’t seem like that milestone was achieved that long ago, that’s because it’s only been six years (Apple, in the summer of 2018). The tech giant at that point comprised about 4% of the S&P 500 index’s total value. A nice chunk for sure, but hardly astonishing or potentially problematic.

Fast forward to mid-2024 and the value concentration has gotten far more narrow. We now have three companies (Apple, along with Microsoft and NVIDIA) that carry market values of more than $3 trillion each. The trio together comprise more than 20% of the S&P 500 index’s market value. Think about that… 0.6% of the stocks comprise more than 20% of the value. It truly is the most concentrated market we’ve ever seen.

Market technicians often monitor overall breadth closely to try and gauge general market conditions, but since I am a more fundamental investor I don’t have much in the way of statistics to share on that front. What I have noticed, though, is that the bulk of the U.S. stock market has stagnated.

Consider the Russell 3000 index (which comprises about 90% of all major exchange listed U.S. stocks) and its offshoots; the Russell 2000 (smallest 2,000) and Russell 1000 (largest 1,000). As of yesterday’s close, on a year-to-date basis, the Russell 2000 was unchanged for the year, whereas the Russell 1000 was up 14%. If we distinguish between the market-cap weighted S&P 500 index and the equal-weighted version, we see a similar pattern (cap-weighted up 15%, equal-weighted up 5%.

Narrow breadth in and of itself, while not a great sign, doesn’t concern me too much. The bigger issue I see is the euphoria surrounding a very narrow group of stocks. When my golfing buddies and young relatives (neither having showed any interest in the market before) are all talking about buying NVIDIA, all it does is remind me of other moments of maximum stock market bullishness… and how they rarely last.

Selling Too Early: When Focusing Too Much On Valuation Punches Back Hard

The longer you invest in the public markets the easier it is to identify your past mistakes. While these errors have cost you some money before, hopefully you can learn enough to reduce those losses in the future. Until I reach an age where my memory starts failing me, the cases where I sold too early will be a constant (positive) reminder that getting too worked up about near-term valuations for stocks with excellent long-term outlooks can result in leaving a lot of money on the table.

Back in 2011 I lived in Pittsburgh where my now-wife was getting her PhD. A short stroll from our apartment was a fellow RIA (hat tip to Ron Heakins with OakTree Investment Advisors - hope you are doing well my friend) who organized regular meetings with local investment advisors to share ideas and stay on top of an ever-changing industry. I recently came across a brief PowerPoint slide deck I shared with the group back then over a weekend breakfast meeting at Bruegger’s Bagels. In hindsight, it exemplifies how selling too early for not the best reasons can cause heartburn down the road.

You can view the 5-slide deck on AutoZone (AZO) here and I will summarize it below.

The investment thesis was fairly simple. AutoZone held a strong position in a mature, economically insensitive industry and was using its prodigious free cash flow to conduct massive share repurchases (in lieu of taking the more tax inefficient dividend route). The ever-smaller share count helped AZO turn 7% annual sales growth into 22% annual earnings growth from fiscal 1998 through 2011, propelling the stock price to 21% annualized gains during that time (to $325 per share by late 2011).

Since I thought the trend was likely to continue, it was a worthwhile idea to share with our group. Simply put, AZO appeared to be a wonderful buy and hold stock and with the economic uncertainty still lingering in 2011 from the Great Recession, the business outlook appeared quite resilient regardless of where we were in the business cycle.

I can’t recall when I sold the stock after that, but I can tell you it has been an “on again, off again” investment during the ensuing 13 years for me and my clients, largely due to peaks and troughs in the stock’s relative valuation even as the core underlying story has remained unchanged the entire time. In hindsight, that was not the right call. The correct move was to simply buy and hold.

Despite AZO stock compounding at 21% per year from 1998 through 2011, the 2012-2024 period has seen similar performance, with the shares compounding at 20% per year to the recent price of $3,100. Trying to exit when it was overbought and add when oversold not only added more work than was needed, but also undoubtedly resulted in lower returns over the long term. Lesson learned.

Full Disclosure: No position in AZO at the time of writing, but positions may change at any time

Shares of Coffee Giant Starbucks Look Appealing After 5-Year Lull

With shares of Starbucks (SBUX) trading around 2019 levels (low 90’s) despite sales and free cash flow that are running well above pre-pandemic levels, I am getting close to boosting my firm’s exposure for my clients. With both a P/E and a P/FCF multiple in the mid 20’s, SBUX fetches a price at the low end of historical valuation ranges despite a competitive position that remains as strong as ever today.

5 Year Price Chart of Starbucks SBUX Stock (2/5/24)

The recent stock price weakness can be linked to negative press (a small but growing subset of stores whose workers believe unionizing is the answer to their prayers), as well as ever-rising retail pricing driven by underlying inflation that threatens to reduce consumer visits.

The first concern seems quite manageable given the overall size of the company. A few hundred unionized stores out of nearly 20,000 total in North America will hardly bite the company’s income statement. I believe the union momentum is likely slowing due to unimpressive results thus far (the two sides have yet to come to an agreement on a contract despite months and months of back and forth). The strongest evidence that disgruntled SBUX employees are simply looking for a scapegoat becomes evident when the media presses them on why they don’t simply quit and work somewhere else. After all, if SBUX treats their employees so badly relative to other chains, a mass exodus of good workers would probably be quite successful in getting SBUX executives to play ball.

Interestingly, the union hopefuls respond to such suggestions by pointing out that they can’t make as much money elsewhere and the benefits aren’t as good. This is true, of course, relative to smaller, more local coffee shops nationwide, but it blunts the impact of their pro-union arguments in almost comical fashion. Basically, SBUX is a better place to work than most other food service companies, but since they can’t get everything they want, they’re going to unionize. I suspect this flawed logic (they don’t really have any negotiating leverage) is why the vast majority of SBUX workers have not pursued a union vote and seem generally happy with their jobs.

The concern of inflation is always real, as SBUX has been forced to raise prices materially like everybody else in recent years. But for decades now the SBUX customer has generally seen the product as a relatively affordable luxury and regulars keep coming back during the ups and downs of most economic cycles. It is hard to see that trend changing now, after it withstood the Great Recession and the pandemic. As a result, the odds that SBUX continues to be a mature, dominant food service business with cash-cow characteristics for many decades to come appear quite high.

All in all, I view SBUX as a phenomenal business that currently trades near historical troughs in valuation terms (I went back about a decade to make that assessment). Don’t get me wrong - it’s far from dirt cheap, but great businesses rarely are, and buying high quality at very reasonable prices has served long-term investors very well over the long term.

Full Disclosure: Long shares of SBUX personally and for some clients, with the latter group likely to see larger purchases in the near future.

MBIA Shareholders Laugh Efficient Markets Hypothesis All The Way To The Bank

As an active manager of debt and equity investment portfolios it will come as no shock that I do not believe in the efficient markets hypothesis (EMH).

From Investopedia.com:

The efficient market hypothesis (EMH), alternatively known as the efficient market theory, is a hypothesis that states that share prices reflect all available information and consistent alpha generation is impossible. According to the EMH, stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices.

While there are numerous examples that clearly debunk EMH, periodically we stumble upon one so prodigious that it is worth sharing. This week that example is MBIA, an insurance comapny that is seeing its share price rise by a stunning 75% today alone:

What makes this stock, which closed yesterday at $7.38 worth nearly $13 today? A special dividend announcement from the company itself:

You read that correctly - an $8.00 per share dividend to be paid two weeks from now. You don’t see that kind of announcement every day for a $7+ stock.

Full Disclosure: No position in MBIA shares at the time of writing (unfortunately)

Is Total U.S. Credit Card Debt Really Over $1 Trillion and Should We Be Concerned?

Recession forecasters tend to jump on any financial datapoint they can find to justify their predictions of imminent financial doom and one of the those that bothers me the most is definitely our “record level of credit card debt.”

Here is a chart from a CNN article over the summer titled Americans’ credit card debt hits a record $1 trillion:

Before we get too concerned, consider the following:

1) Credit card “debt” is measured by simply combining all of the balances of every active card in the U.S. at any given time. So, if you use a credit card for everyday spending in order to get rewards and delay the cash outlay for the stuff you buy, that is considered “debt” even if you pay the balance in full every month and never owe a dime of interest. Considering how many people do this every month, and what percentage of overall credit card spend would come from such consumers, it is highly misleading to characterize every dollar of credit card balance each month as “debt.”

2) The financial media usually highlights the total amount of this so-called debt because it’s a big number. $1 trillion!!! Far more helpful would be per-capita data since the country’s population grows each year. If you don’t make that adjustment, most years will be a new record high.

3) As many financial professionals out there know, debt is one thing (sorry, for this one I am going to pretend the entire $1 trillion+ is debt) but what really tells the story of overall financial health is both assets and liabilities, income and expenses. Having debt is not a big deal (sometimes even quite beneficial) if your assets and income can easily support it.

With those ideas in mind, let me reframe the chart shown above to put credit card “debt” in better context:

a) Although total credit card balances have grown by 56% from 2013-2023, the U.S. population has grown by 24 million people during that time. Thus, on a per-capita basis, credit card balances average $3,029 per person in 2023, up only ~45% since 2013 ($2,089 per person).

b) As previously mentioned, the $3,029 figure does not represent true debt like a student loan or auto loan balance would. I don’t have data to indicate what fraction of card balances are carried over month-to-month, but it is safe to assume it is materially lower than $3,029.

c) How do we know if credit card spending has really been growing at problematic rates? Easy, let’s look at income data. According to the U.S. Department of Housing and Urban Development, median family income nationally has grown from $64,400 in 2013 to $96,200 in 2023 - an increase of 49%.

To summarize, $1 trillion in total U.S. credit card balances might appear to be concerning in the absence of any other information. If we adjust the data for population growth and compare it to income growth, we see that over the last decade incomes have risen 49% while credit card balances have risen 45%. Additionally, as credit card rewards programs have become more engaging over the last decade, it has become more common for consumers to use cards as a way to benefit financially by using them for most purchases and paying their balances off each month.

And so, there doesn’t appear to be a credit card debt problem at all.

That is not to say we will avoid a recession in 2024 (nobody knows that) - but rather simply that credit cards will not be a contributing factor if we don’t.

Big Tech Valuations Are Greatly Skewing the S&P 500's Overall Valuation

With the benchmark 10-year government bond rate now yielding around 5% it can be a bit disheartening for equity investors to see the S&P 500 fetching about 19 times earnings. At best, future upside in price is likely going to need to come from profit growth, not multiple expansion. And if a recession materializes in 2024, prompting a material decline in multiples, well, look out below.

That’s the bad news.

The good news is that the big tech sector has grown to be such a large portion of the overall market that non-tech stocks actually aren’t richly priced at all, even in the current interest rate environment.

Consider the 7 largest tech stocks in the market - Apple, Microsoft, Amazon, Alphabet, Nvidia, Tesla, and Meta Platforms. Together they comprise 28% of the market cap weighted S&P 500 and sport a blended P/E ratio of 37x. Some simple algebra tells us that the rest of the market (the remaining 72%) carries a blended P/E ratio of just 12x. That latter figure makes sense considering stocks generally are well off of their all-time highs and rate increases have clearly been a headwind over the last 24 months or so.

The analysis remains consistent if we expand the calculation to include more of the tech sector. Information technology alone (excluding communications services - which is a separate S&P sector designation) comprises about 27% of the cap-weighted S&P 500 and sports a 29x P/E ratio. Doing the same number crunching shows that the remaining 10 sectors of the index combined carry a P/E ratio of just 16x.

If we try to determine what “fair value” is for the U.S. equity market given the 5% 10-year bond rate, most market pundits would probably say somewhere in the “mid teens” (on a P/E basis) based on historical data. In that scenario, 19x for the entire S&P 500 seems high, until we consider that tech stocks account for the elevated level overall. Exclude tech and (depending on your preferred methodology) everything else trades for a low to mid double-digit earnings multiple - which certainly makes it easier to sleep at night. It also likely explains why there are no shortage of attractively priced stocks outside of the high flying tech names that most people focus on. That’s probably the best place to focus right now as a result.