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U.S. Market Analysis & Valuation

UpdatedSep 28, 2022
DataAggregated Company Financials
  • 7D-5.8%
  • 3M-4.6%
  • 1Y-22.1%
  • YTD-26.6%

Over the last 7 days, the market has dropped 5.8%, driven by pullbacks in every sector, especially the Information Technology sector. The market has dropped 22% in the last year. As for the next few years, earnings are expected to grow by 15% per annum.

Market Valuation and Performance

Has the U.S. Market valuation changed over the past few years?

DateMarket CapRevenueEarningsPEAbsolute PEPS
Wed, 28 Sep 2022US$39.5tUS$19.9tUS$1.8t13.7x21.5x2x
Fri, 26 Aug 2022US$45.3tUS$19.9tUS$1.8t15.7x24.7x2.3x
Sun, 24 Jul 2022US$43.1tUS$19.5tUS$1.9t15.1x22.8x2.2x
Tue, 21 Jun 2022US$40.6tUS$19.4tUS$1.9t14.2x21.2x2.1x
Thu, 19 May 2022US$44.1tUS$19.4tUS$1.9t15.5x23x2.3x
Sat, 16 Apr 2022US$48.8tUS$18.8tUS$1.9t16.9x25.3x2.6x
Mon, 14 Mar 2022US$46.9tUS$18.9tUS$1.9t15.7x24.2x2.5x
Wed, 09 Feb 2022US$50.8tUS$18.7tUS$1.9t16.4x27.1x2.7x
Fri, 07 Jan 2022US$53.0tUS$18.3tUS$1.7t17.3x30.5x2.9x
Sun, 05 Dec 2021US$51.8tUS$18.2tUS$1.7t16.8x29.6x2.8x
Tue, 02 Nov 2021US$54.2tUS$17.8tUS$1.7t18.2x31.6x3x
Thu, 30 Sep 2021US$51.0tUS$17.5tUS$1.6t17.8x31.7x2.9x
Sat, 28 Aug 2021US$52.2tUS$17.3tUS$1.6t17.4x32.7x3x
Sun, 04 Jul 2021US$50.5tUS$17.2tUS$1.6t17.5x32.1x2.9x
Wed, 07 Apr 2021US$46.3tUS$16.2tUS$1.2t18.8x37.9x2.9x
Sat, 09 Jan 2021US$43.6tUS$15.6tUS$838.4b18x52x2.8x
Fri, 02 Oct 2020US$37.6tUS$15.3tUS$837.2b16.1x44.9x2.5x
Mon, 06 Jul 2020US$33.7tUS$15.3tUS$837.1b16.6x40.2x2.2x
Thu, 09 Apr 2020US$27.3tUS$15.9tUS$1.0t13x26.5x1.7x
Wed, 01 Jan 2020US$34.7tUS$16.0tUS$1.3t17.6x26.7x2.2x
Sat, 05 Oct 2019US$31.8tUS$15.8tUS$1.2t16.7x25.9x2x
Price to Earnings Ratio


Total Market Cap: US$31.8tTotal Earnings: US$1.2tTotal Revenue: US$15.8tTotal Market Cap vs Earnings and Revenue0%0%0%
U.S. Market Price to Earnings3Y Average 33.3x202020212022
Current Market PE
  • Investors are pessimistic on the American market, indicating that they anticipate earnings will not grow as fast as they have historically.
  • The market is trading at a PE ratio of 21.5x which is lower than its 3-year average PE of 33.3x.
Past Earnings Growth
  • The earnings for American listed companies have grown 14% per year over the last three years.
  • Revenues for these companies have grown 7.9% per year.
  • This means that more sales are being generated by these companies overall, and subsequently their profits are increasing too.

Sector Trends

Which sectors have driven the changes within the U.S. Market?

US Market-5.79%
Consumer Staples-3.70%
Consumer Discretionary-7.29%
Real Estate-7.92%
Sector PE
  • Investors are most optimistic about the Consumer Discretionary sector even though it's trading below its 3-year average PE ratio of 64.3x.
    • This optimism is likely because analysts are expecting annual earnings growth of 29.2%, which is higher than its past year's earnings growth of 15.2% per year.
  • Investors are most pessimistic about the Energy sector. Although, investor sentiment seems to have improved given that it's trading above its 3-year average of 5.9x.
Forecasted Growth
  • Analysts are most optimistic on the Consumer Discretionary sector, expecting annual earnings growth of 29% over the next 5 years.
  • This is better than its past earnings growth rate of 15% per year.
  • In contrast, the Energy sector is expected to see its earnings decline by 5.9% per year over the next few years.

Top Stock Gainers and Losers

Which companies have driven the market over the last 7 days?

CompanyLast Price7D1YValuationSector
LLY Eli LillyUS$311.103.1%
BR Broadridge Financial SolutionsUS$149.35-7.9%
GIS General MillsUS$77.973.4%
31.4%PE16xConsumer Staples
BMY Bristol-Myers SquibbUS$70.360.9%
TCOM Trip.com GroupUS$27.663.6%
-7.8%PS7xConsumer Discretionary
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Market Insights

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Sep 27

Shorting Tesla: Bridging The Lofty Valuation To Economics

Summary Despite Tesla's recent declines, it continues to outperform by sustaining gains of more than 20% QTD while the broader market approaches mid-June lows. Yet, rising interest rates and persistent inflationary pressures threaten to erode the valuation premium attributed to the stock. The following analysis will visit the composition of Tesla's valuation from an economics point of view and explain why a near-term downward adjustment is imminent. Markets dropped another leg lower over past weeks after strong CPI data and another jumbo rate hike pushed prices towards the June troughs. While the Tesla (TSLA) stock has not been spared and followed suit with recent market declines, It continues to trade as one of the most expensive companies in the market, let alone the broader auto peer group. The large valuation premium attributed to Tesla is largely due to optimistic market expectations for both its long-term growth trajectory, as well as anticipation for generous returns on capital stemming from its persistent dominance in the burgeoning electric vehicle ("EV") market, as well as high profile innovative projects that promise high-margin recurring revenue streams (e.g. software subscription sales, robotaxi fleet, etc.). Yet, with rising costs of capital amid tightening monetary policies, and compressing returns on capital due to near-term input cost pressures, we believe the Tesla stock faces an inevitable fate of falling another leg lower in tandem with broader market declines until macro tightening risks peak. Although the stock has been largely more resilient compared to peers in the recent selloff, the lofty valuation it continues to enjoy is, in our opinion, becoming increasingly at risk due to mechanics of valuation theory that will likely kick-in to propel a downtrend over coming months. Understanding the Composition of Tesla's Valuation General valuation theory deems a firm value is largely composed of two components - a "steady-state value" representing a company's valuation in the event that earnings are sustained in perpetuity, and "future value creation" representing a premium for expectations of incremental growth. In the case of Tesla, much of its lofty valuation is sustained by the generous premium pertaining to future value creation in which the market has rewarded the stock. And this is not without reason - Tesla is considered one of the most prominent disruptors of our generation in upending norms of legacy automaking. Although Tesla was not the first ever to build EVs, it has definitely pioneered the electrification of the passenger vehicle market and spearheading the global transportation sector's transition to electric. The company has also done a tremendous job in scaling productions as one of the most efficient manufacturers in the auto industry, which is further corroborated by its industry-leading margins, though its volumes are not nearly as close as those of some of the largest legacy automakers. Now, let's dig a little deeper into the two components of firm value: 1. Steady-State Steady-State Firm Value Equation (Credit Suisse) The steady-state value represents the value of the firm when "NOPAT (net operating profit after tax) is sustainable indefinitely and incremental investments will neither add, nor subtract, value". This is the so-called terminal value of a company when a certain perpetual growth rate is applied to future cash flows. The perpetual growth rate is typically determined by using GDP as a key benchmark, adjusted for maturity of the industry as well as other company-specific factors such as market leadership and/or market share. Companies operating in industries that are higher growth in nature are typically valued at a perpetual growth rate closer to or more than GDP, given their greater contributions to economic growth. Alternatively, companies operating in lower growth and/or mature industries are typically allocated a lower perpetual growth rate. Another key input in determining steady-state firm value is the cost of capital, which reflects the costs of sustaining this perpetual steady-state growth. The Gordon Growth Model is a typical representation used in determining a firm's steady-state value: Gordon Growth Model (Credit Suisse) 2. Future Value Creation Future Value Creation Formula (Credit Suisse) Future value creation represents the incremental value that investments earn (i.e. return on capital / "ROC") relative to cost of capital, and takes into consideration the time period in which this value-creating opportunity will last. This firm value component is where much of Tesla's premium valuation is explained. The future value creation premium typically reflects various growth-cost combinations - high growth, low spread between return on capital and cost of capital; moderate growth, moderate spread between return on capital and cost of capital; low growth, high spread between return on capital and cost of capital. In Tesla's case, the company's future value creation premium represents its high growth and high spread between return on capital and cost of capital (see here for further discussion), underscoring its market leadership and what has largely been justifying the stock's lofty valuation multiple in recent years. The future value creation premium is where Tesla's near-term valuation weakness is expected to stem from. When the return on capital and cost of capital spread narrows, the future value creation premium is reduced. Vice versa, when the return on capital and cost of capital spread widens, the future value creation premium expands, which explains the case for Tesla's rapidly rising valuation in recent years. The company's return on capital has been gradually expanding in recent years as it continues to benefit from scaled productions and generous margins. Meanwhile, it has also managed to keep its cost of capital at a manageable level thanks to robust profits and operating cash flows that have brought its credit rating closer to its investment-grade peers: S&P Ratings has upgraded Tesla to BB+ last week [October 2021] with a positive outlook - this brings the EV maker one notch away from an investment grade rating. In addition to being the first EV pure-play to scale productions and achieve consistent growth in profits and operating cash flows, Tesla has also prudently navigated through the global supply chain constraints that have upended legacy automakers with years of additional experience within the automotive industry under their belts. Time and again, Tesla has proven its ability in minimizing inherent business and financial risks such as operational constraints by maintaining record-setting margins and robust cash flows, while ensuring sufficient resources and talent to solve problems. From a financial and operational standpoint, it will only be a matter of time until Tesla's credit rating finally catches up with its fundamental reality. An investment grade rating would underpin better pricing if Tesla were to raise capital through debt financing. This would also accordingly bring down the weighted average cost of capital ("WACC") applied in valuing its future earnings, thus underpinning even better valuation prospects ahead. An investment grade rating would also be a pivotal indicator of Tesla's ability to fulfil market expectations for it to maintain the dominant share of the fast-growing electric and autonomous vehicle markets in the long-run, underscoring better valuation prospects ahead. Source: "Tesla Vs. Lucid Group: Which EV Stock is the Better Buy?" In addition to a favourable spread between its return on capital and cost of capital, Tesla also benefits from an elongated competitive advantage trajectory given the burgeoning EV industry buoyed by global corporate and political agendas that are moving forward with climate change and global warming mitigation as one of the forefront factors of decision-making. Near-Term Macro Implications on Tesla's Valuation However, increasing macro headwinds in the near-term are threatening the high growth, wide cost-returns spread that has come to Tesla's benefit in recent years. With central banks gathering pace in raising interest rates to tame record-high inflation, companies - including the seemingly "untouchable" Tesla given its still-high valuation - face higher borrowing costs in addition to rising input costs ahead. In valuation theory, the fed funds rate ("FFR") directly impacts the risk-free rate ("RFR") and equity risk premium ("ERP") inputs of determining cost of debt and cost of equity - and inadvertently, cost of capital on a holistic basis. Essentially, with aggressive rate hikes in the books within the foreseeable future, it means the cost of capital will inevitably rise for all market participants. Meanwhile, inflation threatens to erode returns on capital by adding pressure on margins - a point that Tesla CEO Elon Musk has repeatedly warned of, even though the company continues to boast industry-leading margins and best-in-class manufacturing efficiency. The combination of inflation and rising rates will likely narrow the spread between Tesla's generous returns on capital and favourable cost of capital, thus reduce the future value creation premium that has been sustaining the stock's lofty valuation. This also provides an explanation of why Tesla's stock price, as well as the broader market, as wavered this year amid tightening financial conditions. Now, you might say - well, Tesla has market leadership that is expected to last into the longer-term and contribute to a lengthened competitive advantage period that is poised to compensate for the near-term spread reduction between return on capital and cost of capital within the future value creation premium leg of its valuation. In this, we point to our recent discussion over Tesla's imminent loss of market share as the EV landscape becomes increasingly crowded: The European Federation for Transport and Environment predicts more than 300 available EV models within the European automotive market by 2025, while the IHS Markit predicts more than 130 available EV models in the U.S. by 2026, which is equivalent to the number of ICE options available in the market today. Specifically, in Tesla's largest U.S. market where it currently commands a 75% share of annual EV sales, the emerging sector's penetration rate surpassed the 5% inflection point in the first half of the year, marking the beginning of rapid mass market adoption. More than 25% of American population have identified EVs as their choice of preference when purchasing their next car, compared to 16% in 2019. While the trends may appear as favourable tailwinds for Tesla on the surface, a deeper dive would reveal that many prospective buyers are alluding to the increasing availability of different EV models for their preference. The increasing availability of non-Tesla EV models across a wide array of performance, range capability, and price categories is what has encouraged rapid mass market EV adoption in the U.S., heightening risks of share erosion for Tesla over the longer-term. Source: "Tesla Beat Supply Chain Challenges, What's Next?" Similar challenges are also being felt in China, one of Tesla's fastest growing markets that has investors wondering if it will overtake the U.S. as the EV titan's largest segment: It's an understatement to say Tesla had a breakout year for vehicle sales in China in 2021. They sold over 340,000 vehicles, nearly 2.8 times the number of vehicles sold in 2020 and just 8,000 less than what they sold in the U.S. It's unclear whether China will overtake the U.S. as Tesla's biggest market in 2022, but it will certainly be close. Source: Bloomberg According to Morgan Stanley, the recent push for reduced corporate reliance on China due to rising geopolitical tensions may imply that "Tesla is passing through its peak China dependency stage over the next 12 months". This is further corroborated by Tesla's ambitions in ramping up sales within the European EV market this year by taking advantage of its local production capacity, while maintaining its prominence in China still by continuing the build-out of Superchargers in the region - a core undertaking that has been credited for Tesla's success in the world's largest EV market.



Li Auto




Sep 26

Amazon's Bear Market Insurance

Summary Three ways to protect capital in a bear market. Deposits, litigation, and merger arbitrage. Here’s one of the latest opportunities to consider. Deposits Where is the first place I look for bear market insurance? Federally insured deposit accounts. Join a credit union such as Affinity FCU. They offer rates up to 3.5% APY and $250k of federal deposit insurance. If they convert to a bank someday, you could get preferential access to an equity offering worth millions. Eastern (EBC) holders that fully participated in that demutualization have each made $2,278,000 so far excluding dividends that we've received, quickly more than doubling our investment with virtually no risk to original invested capital. Worth the wait. Litigation The second place to look is litigation. StW's best idea for 2022, Renren (RENN) is a litigation play that could work this year regardless of what the broader indexes do. YCharts One focus in our new StW newsletter has been what to do with their RENN profits. Arbitrage Last but not least: definitive merger arbitrage. Pre-arbitrage takeover candidates have had a disastrous 2022, but definitive merger arbitrage has hung in there. The newsletter picks include two definitive merger arbitrage ideas, Nielsen (NLSN) (since completed) and Twitter (TWTR) (a work in process). SA SA Who? Twitter remains my favorite component of our merger arbitrage basket and at this point you missed Nielsen, but there is a new opportunity to consider. Amazon (AMZN) is buying iRobot (IRBT) for $61 per share in cash. The target makes robots. IRBT What? The deal requires approvals from the US, EU, and the target's shareholders. When? The deal will probably close by the second quarter of 2023. Where? The target sells their products in the US, Europe, Middle East, Africa, and Japan. They are headquartered in Massachusetts. Why?