Best Stocks to Short Today Could TWLO Be One?

We originally put a post-up about Twilio stock with the name “Twilio Investor Relations: A Tougher Job Than Most.” Now, as you will notice from that live link, we have kept that link and the original post up on our website. The reason we put that information up is that KCR’s Charts for the Curious posts are free. We are not a typical Wall Street firm, and our posts are designed to inspire thoughtful review by our readers.

We believe that many stocks with massive market capitalizations today are beneficiaries of price rises driven by promotional “touts” and other services promising retail investors a quick buck. In our opinion, many of those services are little more than dubious momentum strategies that cannot possibly live up to their promises.

So, our Twilio piece was meant to get people to notice the incredible lack of basic material and GAAP compliant numbers on the firm’s second quarter earnings call. Our hope was that when people googled the stock, they might see that the firm failed to provide investors with any meaningful disclosure much less articulate a credible path to profits.

When it comes to trying to figure out which stocks to buy, understanding how a firm that loses -$700ml a year on just over $2bn in revenues is worth $60 billion is pretty important, in our view.

IS TWILIO A SELL?

The stock-specific posts on KCR’s Charts for the Curious page don’t feature price targets and we certainly are not encouraging people to put on a short sale using borrowed shares in a margin account! What we are trying to do however is alert investors to the fact that a company with only a few billion in revenues is bigger than immensely profitable and proven firms like Kimberly Clark, General Dynamics, Boston Scientific, Northrop Grumman, FedEx and many others.

Very simply: we are NOT rendering financial advice. Rather we are encouraging financial awareness.

Read our original post and make your own decisions!

If you want tailored financial advice, we encourage you to use a financial advisor. If you are committed to being a “DIY investor” we strongly suggest you read Twilio’s financial statements and review both the bull and bear views put forth on superb sites like Seeking Alpha.

Conceptually our goal here is very similar to our (also free) post where we wrote up our key takeaways from legendary investor Seth Klarman’s book, A Margin of Safety. On a post like the one we put out about Twilio, we are trying to encourage some sense of spatial acuity.

The history books are unambiguous about speculative periods like today: retail investors often get run over. In fact, there were numerous laws and lawsuits that followed the last period of financial mania that resembled today. The dot.com mania.

There are 30 analysts covering Twilio according to Bloomberg. 28 of them rate it a “BUY.” There are ZERO analysts who rate it a sell. As we noted in our original piece, Twilio is a money losing machine that acquired 8 companies in just 9 months.

We know analysts are supposed to be separate from banking, but their job is to help the bank make money. Could it possibly be that some of these folks, in doing their jobs for their investment banks, see the immense fees from all these transactions and want to be in Twilio’s good graces?

HMMMMMM. Ask anyone who has worked in that job what they think the answer is. We’ll let you decide.

Best Shares to Short Sell

The truth of the matter, in our opinion, is that very few people, if anybody, can tell you what stock prices for any company or the S&P 500 are going to do over the short term. We have seen how some of the most shorted stocks like GameStop, AMC, and others became political and financial “footballs.”

Investors, feeling like markets are serving the few at the expense of many, decided to go after hedge funds. Unfortunately, these activities devastated some individuals and actually enriched many of the very people the bands of investors were going after. Our firm has no views on this type of activity other than we hope people will be careful.

This is particularly true when you are dealing with options trading around a short squeeze. The number of shares is finite at a given moment, but the management of these companies actually has a huge incentive, if not an obligation, to issue equity when stock prices detach from fundamentals.

Growth stock investing in loss making companies is a difficult game in KCR’s view. And we encourage you to visit our Charts for the Curious page. Scroll through the posts. What you will find is that many share prices today in public trading are at valuations that have always ended in disaster. We cannot time these things and we doubt anyone else can either.

Our newsletter service is designed to help investors stay the course. We recognize all too well just how hard this is in light of the fortunes being made around us. But, as our research shows, this has never, in hundreds of years, ended well. We are a conservative but optimistic lot.

KCR believes that the massive overvaluation we believe exists in stocks like Twilio is precisely why there are such incredible opportunities to buy some of the most durable, proven, and profitable firms out there at reasonable prices today. If you review our research, you will find that our team is committed to trying to highlight pockets of undervaluation and opportunity with an emphasis on capital preservation and quality.

As always – thank you for your interest in our work.

Disclaimer
The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2020 Kailash Capital, LLC – All rights reserved.