Good questions and comments- let me respond.
I had noticed we both graduated from CMU- well all the more reason to keep this civil.
>First, you taint an otherwise overall good effort to explain your analysis by summarily hanging anyone who doesn't agree with your conclusion as being guilty of "superficial analysis." What is that?
I'm not hanging anyone for being guilty of anything. I would consider a superficial analysis as someone who simply read the stock's latest SEC reports and latest press releases, and forming an investment decision solely on that information (Of course, anything less than this, is no analysis at all). Furthermore I don't blame anyone for giving up on Valence after reading the SEC reports and press releases. There's a lot of stocks out there, and we have limited time, so scan the info and move on if its not for us. But I would argue that usually all that information is reflected in the price of the stock, and one's chances of outperforming the market average are quite low if that's all the analysis one does. Now I realize that some investors can still outperform by utilizing some screening information and selecting a large number of stocks with certain characteristics, betting on the performance of the 'pool'. I own a value oriented mutual fund, Tweedy-Browne, that has done just that based on certain financial screening criteria.
But this is a speculative stock, and I believe requires a different approach. A more thorough analysis would include listening to conference calls, studying the competitors by reading their reports and listening to their calls, investigating the technology, studying the market and customers, reading customer comments on the new product technology and their actions to purchase it or fund it, and learning more about the large backers and shareholders. Also contacting any professional investors or analysts who follow the sector, or suppliers who might have some general knowledge of the status of the company start-up activities, or watching the progress and statements by JV partners, could be helpful. These are the kinds of activities that I believe are important to ferret out opportunities to outperform the market. Since these activities take a lot of time, the 'teaming' aspects of the internet can be helpful. For example, hypothetically, someone on this board could have contacted and stayed in touch with the ex-CEO of the company as he suffered through a serious illness in his Louisiana home (but who still held a lot of shares). Today, the CEO may be off-limits to further contact, but having the knowledge of his view of the company prior to resuming the CEO job, would be somewhat helpful in interpreting his current actions. I mention this only as an example of the more thorough research a 'team' can achieve rather than the kind of gut-wrenching name calling all too often encountered on some boards.
Even if we do all of this, we could still be wrong, so its important to spread our risk on these speculative stocks. And we should in the final analysis be reasonably skeptical about the prospects for a speculative company with no earnings, no revenues to speak of, and not even customers or a saleable product. But occasionally the risk/reward is such that one can employ strategic decision analysis and invest in enterprises with uncertain outcomes. Getting the risk/reward correct is an important part of performance, and getting this right takes a lot of analysis and work.
>Second, I don't agree with your price estimates. I know that lithium ion batteries for digital video cameras with MSRP of $80 sell for $50 to $60 in retail markets. Wholesale prices available to the manufacturer must be considerably less.
I was not pricing videocam batteries, the market I analyzed was laptop batteries. Videocams would take smaller batteries, and the cost of production would be lower as well as the pricing, but could be produced in greater quantities.
There have been a number of posts way back on this thread talking about laptop pricing. Check out the price of Li-ion laptop batteries, and consider the price is somewhat a function of storage capacity. Then you can come up with a price for a certain amount of storage capacity, and estimate the pricing for a Li-poly battery.
>Third, your projections regarding line productivity and capacity aren't persuasive. What is your source of information? If its in the 10K or part of a publicly verifiable source you would do a great service by disclosing the source to others. If the source is not part of publicly verifiable information, how can you reasonably expect people to accept it as probable.
I admit some of the plant capacity info is from the posts here, but appear to be consistent with Valence's capital expenditures and amount and size of equipment being installed. The run rate of 3M laptop batteries a year I used is significantly less than the capacities mentioned in this thread. Furthermore we have some independent confirmation from the analysts who put out an estimate on ULBI in conjunction with their recent secondary. The analyst gave ULBI over a $1.00 a share earnings estimate for capacity that is a fraction of Valence's capacity. This indirectly confirms and supports approximately some of the estimates made here, if Valence indeed can mass produce the batteries and the market exists.
Valence can apparently produce more cells than what I estimated for their initial share of the laptop market, so I expect that videocam batteries or cellphone batteries will also be produced- I simply can't arrive at a reasonable earnings forecast for those products without better information on the production costs for these smaller units. I am being very conservative, and ignoring any revenue and earnings contributions from these products for the time being.
>Fourth, 80 to 90% probability for mass production by September must be taken as being shot from the hip in the absence of an analytical framework for evaluating probability.
I admit I base that probability on my personal experience and on Lev's comments. I spent much of my career starting up plants, and am no stranger to plant start-ups. I am quite familiar with the process used, and generally when all the units in the process have been tested satisfactorily, then timing the rest of the start-up is more predictable. As long as one unit can't operate satisfactorily, timing is not only a shot from the hip, its a shot in the dark.
If I wasn't familiar with startups, then I might not invest in Valence yet. Since I was, I discounted the possibility of the plant starting in the MarQ, and didn't expect mass production startup by the end of this summer until after the May conference call. (I have a prior post on the thread in May giving some rough timing estimates.) Therefore, I have been gradually increasing my position as my confidence has increased.
Well I hope I kept this reasonable enough,
Paul |
