by Travis Johnson, Stock Gumshoe | April 2, 2014 11:23 am
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Interestingly, per our article yesterday, Tilson has been discussing his short positions and just noted that Organovo (ONVO), a short bet that he’s patiently waiting on, is one of the worst businesses he’s ever seen. He’s just waiting for it to crack so he can add to his short position.
He calls the whole 3d printing business an obvious bubble, too, not just ONVO — “3D printing is real, the stock valuations are not” … and said that the alternative power sector (PLUG, Ballard, Capstone) is another one.
I would be interested in Tilson’s reasons other than his promotion of his short position. 3D printing doesn’t strike me as so much of a big bubble as much as a new idea trying to find it running legs. It may take some time to see which 3D company finds its strongest legs. (ONVO) as a short bet and the claim as the “worst” is a bit of a stretch since I would find it hard to quantify the “worst.” I just don’t understand their technology applied to human tissue. Any enlightenment will be appreciated.
He’s not actively promoting his shorts, this is a small group and the 3D comments were mostly in passing. His basic assertion on DDD and SSYS is similar to my current opinion: these are real companies and real products, but the valuation is absurd — these are incrementally improving products that have been around for a couple decades, certainly worth something but bubbled up by overly enthusiastic investors.
The newer companies he thinks are junkier (voxeljet, etc.), and he seems to think ONVO is benefitted by both the 3D and the biotech bubble, with no prospects for material revenues in the foreseeable future. Not at all the focus of his presentation, I just found it interesting. Tilton has not made money on his short book during the past five years of bull market, though he has made some very good short calls in the past (K-12 and those alt energy names most recently). Doesn’t mean he’s right, but most value investors would shy away from the richly valued 3D stocks — you need a leap of faith to turn the cool factor and decent revenue growth into meaningful leaps in earnings to justify these share prices.
The two biggies are good businesses, just not reasonably valued ones — and as any short seller knows, that irrational valuation, even if you’re right about it being irrational, can persist for many years and even decades. That’s a big part of the reason that I almost never sell short (or even buy put options).
I certainly agree on your comments as to evaluation. I have made money on both but only as a trade watching stock pricing patterns. I don’t currently recommend either since their patterns appear that value investors are watching and waiting for sanity and value to return to the market. I am not in either stock. It may take a year or more before people find their real value and not just the current hype. Thanks a lot for your clarification as to Tilton’s view on stocks considered as worthy of a short position. I would like to be savvy enough to short stocks but so far my hind sight is better that my foresight. I’m unsure why I didn’t recognize this when Lehman was so over leveraged.
He did get into much more detail on his shorts later in the day, including deeper analysis of his DDD short and his QCOR short, both pretty compelling arguments.
For DDD, the short version is: never in history has a large cap non-pharmaceutical manufacturing company been valued at 10X sales when it reached a $10 billion market cap, that kind of high valuation has been reserved for huge margin companies like internet stocks and biotechs, and there have only been a dozen or so of them that he can find. DDD is extremely promotional and valuations assume mass adoption eventually of 3D printers, which is not likely in the near term. He likes SSYS better because it has a better business and is less promotional (to investors), but it’s also victim to the overvaluation hype so he is short every 3D printing stock he can find (there are five of them that are reasonably sized public companies, he is short all of them but DDD is the most egregious and misleading in hyping itself, he says).
Thanks for the updates Travis.
So, were his comment on alternative power companies mostly a throw away line or did he get into a discussion of them later. They ran up in the last couple of weeks and sort fo ran past, way past, what I would think of as reasonable valuation for most of these companies which are, admittedly, still being values on the basis of technology not sales.
No one gave a deep short analysis on that particular stock, but several presenters mentioned the lot of them (particularly PLUG, but also the similar ones) as shorts.