Russian Stocks!

Dear Reader,

The Moscow Exchange MOEX Russia Index has doubled in value since during the last five years.

Still, the major Russian stocks look undervalued measured by their Price/Earnings ratio. For 2017, 2018 and up till the 3rd quarter of 2019 the Price/Earnings ratio of the stocks in the Moscow Exchange MOEX Russia Index was 7.8, 8.5 and 6.1 which is tiny compared to the Standard and Poor's Index trailing 12 months Price/Earnings ratio of 22.81 as of 11 October 2019.

Why are Russian stocks so cheap? One of the main reasons is the price of oil. The price of Brent oil reached 136 and Crude oil reached 164 USD in 2008 and in 2007 the Russian economy grew by more than 7%.

Then Gazprom was valued at more than 200 bln. USD. Now Gazprom valuation is close to 90 bln. USD. Sberbank, the largest bank in Russia, is one of the largest banks in Europe in terms of market capitalization. The Russian stock exchange market is dominated by oil and gas, resource companies, banks and retailers.

The Russian stock market is predominantly driven by the price of oil and USD/RUB and EUR/RUB exchange rates. After the annexation of Crimea the Russian economy slipped into a recession and stocks tanked. Due to the sharp depreciation of the Russian Ruble from around 30 Rubles for a dollar to around 64 USD today the Russian economy lost steam and the Russian consumer was hurt. However, since 2015 Russian stocks have staged a remarkable recovery.

These are part of the reasons why Russian stocks are so cheap by international and even emerging markets standards. Personally, I think the price of oil is prone to rise in the near future due to its susceptability to geopolitical conflict. Yes, Russia, Saudi Arabia and the USA are pumping record amounts of oil, but the consumer is not so weak as the price of oil implies. Even if a global recession ensues, the price of oil could rise sharply due to geopolitial pressure. As evidence by the recent drone attack on the largest oil fields in the world in Saudi Arabia, asymmetric war is here to stay. And frankly said, I do not think the geopolitical risk premia is fully incorporated into the price of oil.

So all said, major liquid Russian stocks remain strong value plays for the long term investor. What is more, the dividend yield of Moscow Exchange MOEX Russia Index as of Q3 2019 was 6.7%

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Tesla Valuation 6th October 2019

Dear Reader,


Here I am going to refresh my attempt to value Tesla, Inc. the electric automobile manufacturer.

Currently Tesla is valued by the market at 43.25 bln. USD and trades at 231.43 USD per share. Is this valuation justified? No. I think Tesla is currently worth somewhere about 25 bln. USD or circa 40% below its current valuation.

Why? Because Tesla has not shown it can be a profitable company. If you take tesla Net Income results for 2015, 2016, 2017 and 2018 it turns out Tesla has lost the staggering amount of circa 4.5 billion USD for these four years. In 2018 Tesla had a net loss of 976.01 mln. USD. At best Tesla could be a niche producer of a niche product like electric automobiles. So there is some value in Tesla currently. In  the next 2-3 years I do not think Tesla's stock price could go down to zero. Tesla's production technology has some value. So according to my calculations Tesla is worth circa 135 USD per share in the next 2-3 years.

There is always the opportunity that a technological breakthrough can be achieved and producing electric cars can become a profitable business. What is more, if Tesla can achieve enough economies of scale by raising production of its electric automobiles Tesla could still reach profitability. So I do think there is still value in Tesla. I think Tesla is worth about 25 billion USD currently.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Peloton Interactive Valuation!

Dear Reader,


Here I am going to make an attempt to derive the intrinsic value of Peloton Interactive, Inc - an American exercise equipment and a media company that this week listed in an IPO on Nasdaq.

The market currently values Peloton Interactive at 7.011 bln. USD. Is this valuation justified?
I think it is a little high.

I estimate Peloton Interactive is worth around 5 billion USD. Why? Because Peloton Interactive is simply not profitable to justify a valuation of Price-to-Sales ratio of 7.66.

Peloton Interactive achieved 915 mln. USD revenue in its last fiscal year, which compares to 435.1 mln. USD - last fiscal year's Peloton Interactive's revenue, which amounts to 110% revenue growth. That spectacular revenue growth came at a high cost, though. Peloton Interactive's fiscal year loss grew significantly from 47.9 mln. USD in fiscal year 2018 to 195.6 mln. USD in fiscal year 2019, which basically means Peloton Interactive is losing almost 1.2 USD on every 1 USD in revenue it makes.

Simply because of the large losses Peloton Interactive is not worth its current 7.011 bln. USD valuation. I would say currently Peloton Interactive is worth around 5 billion USD. This, of course, is based on its performance of up to date and in the near future. If in the next 2-3 years Peloton Interactive continues to grow revenue by around 50% year on year and gets closer to profitability or even becomes profitable, then Peloton Interactive may well be worth much more than my current estimate of 5 billion USD.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

WeWork Valuation!

Dear Reader,


The startup office rental company WeWork is about to debut on public stock markets with an Initial Public Offering.

What is actually WeWork worth?

WeWork realized 1.8 billion USD in revenues and made a net loss of 1.9 billion in 2018. According to media reports WeWork should price its IPO somewhere at 20 billion USD valuation. What is WeWork's intrinsic valuation?

I think WeWork is worth around 12 billion USD in the next 1 year. Simply, the loss of 1.9 billion USD is too big. Furthermore, there are corporate governance problems like the company paying millions to its founder and employing his wife and another family member. The upside for WeWork is that its revenue more than doubled from 886 mln. USD in 2017 to 1.8 billion USD in 2019. Actually, if WeWork continues growing so fast I am not so pessimistic as some analysts who say the company is worth 0(zero). If you scale a company fast enough there comes a time when revenue just exceeds costs at a breakeven point and after that the company becomes a money printing machine.

If WeWork continues to grow revenue with let's say 30% a year in the next three years, I think WeWork's valuation could easily reach 25 billions USD in 3 years time, if it improves its operating margin.


Here, I would like to make a note on valuations. Valuations are not static. At one point in time a company is worth something, at another point of time a whole different sum of money. Actions of governments on competition, regulation could dramatically alter the value of companies overnight. Human action could do the same.


So valuations are dynamic and depend on numerous ever-changing factors.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Can Apple Really Turn Into a Services Company?

Dear Reader,


Apple is trying hard to reinvent itself as a service company. This is easy to understand, since iPhone sales account for more than 60% of Apple's revenue. And iPhone sales are falling. Apple even stopped publishing its iPhone, iPad and iMac unit sales, since apparently, especially iPhone unit sales, Apple hardware unit sales are falling.

This is a logical development, because the market for smartphones is globally already saturated and smartphone unit sales have already started falling. It is logical to assume that global smartphone sales will continue to rise with approximately the level of world GDP growth, which should hover around 3% in recent years.

So Apple is trying hard to convince its investors it can turn itself into a service company driven by App Store application sales. Apple currently receives approximately around 35 billion USD  a year from application sales revenue. One of the benefits of turning into a service company is that service companies usually trade at higher valuation multiples like Price/Earnings, Price/Sales, Price/Book value. Another obvious reason is the higher expected growth of the services market Apple is targeting.

So can Apple reinvent itself into a service company? I would say partially yes. I think the key to Apple becoming a service company is not so obvious - it is the iPad. Apple needs to make the iPad ubiquitous. iPad's larger screed could prompt more consumers to download and pay for applications from the App Store from which Apple gets a 30% cut. An important further step is to make the iMac able to run App Store applications seamlessly. This would again make consumers more likely to pay for higher margin and higher added value applications.

So, I would bet Apple's service revenue would grow to about 80 billion USD in 7 to 10 years. For the last fiscal year Apple made 265.6 bln. USD in revenue. I would say in 7 to 10 years Apple would make about 320 billion. USD in revenue. So 80 billion USD in service revenue would make about 25% of Apple's revenue in 7 to 10 years, according to my assumptions. Apple's market valuation should prove much more resilient than Facebook, Google and Amazon's in the ensuing global economic recession. What is more, services are more profitable. And Apple would not need always to make the huge effort to come up with a new blockbuster hardware model or innovation every year. It will instead enjoy the much more stable and predictable revenue from services sales.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich