People asked me whether Tesla is still a good short at this point. But honestly, you're better off asking: What makes a company ripe for shorting?
A company is worth something because it pays dividends. The dividends require earnings. The earnings require revenue. When the market values a company at more than 10x revenue, it needs to grow its revenue very rapidly to grow into its valuation.
If you're dealing with a small novel company that's possible. When you're dealing with a large established mature company, then it's much harder to rapidly grow revenue and so it's suggestive of the market overvaluing the company.
The problem with overvaluation is that it can last for years. As an example I bought my first few thousand bucks of Tesla and Shopify puts in 2020, the Tesla ones expired worthless. The tragic fate of the #TSLAQ community is that they figured out the Tesla fraud too early.
You also need a catalyst. A common catalyst is news that the growth story is becoming implausible. That's generally when the collective delusion that leads to a bubble becomes unsustainable. Hence why I recommended selling your kidney to buy puts once the backlog began to plunge.
That's why Tesla's share price has dropped so dramatically in recent months: The numbers from China in particular made it very clear that demand is saturated. The whole world doesn't want Tesla cars, so growth can't continue at 50% for years to come.
I doubt Tesla is the only ridiculously overvalued mega cap left. Eli Lilly trades at 11 times rev, Nvidia at 14 times rev. To justify such valuations, everything needs to go right for a company: Margins need to stay high, revenue needs to keep growing rapidly.
Just as with Tesla, insiders have done nothing but sell during the past year. Just as with Tesla, revenue looks to be stuttering. If history is a guide, these valuations won't be sustained for very long.
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