By Nelson DeMestre | Associate Analyst at NAOS Asset Management

“They're just telling you they are because they're paying their employees in stock. And by the way, that's a two-edged sword. We saw that in the early 2000s when the dot-com era blew up. Companies that were aggressively paying people in stock options because they didn't have to expense them in the US, suddenly realised they had to pay people more and more as the stock declined. And there was more and more dilution. And so what was a virtuous circle on the way up, became a vicious cycle on the way down.” Jim Chanos

• He is still seeing companies trading at 10-15x revenue multiples that are “not worth anything”
  • “We have a number of sort of $100 stocks that we think are probably worthless because the business model is just broken and yet they're reporting numbers that are not real.”
• His Tesla short reminds him of Cisco in Dot.com bubble.
  • “Most auto companies trade at one half of revenues because they're cyclical. Tesla trades at nine or 10 times revenues, a huge 90 times the estimated earnings.”
• He believes Square (Recently renamed Block and the acquirer of AfterPay) is overvalued and have accounts that are worse than headline presentation figures
  • “They're supposed to make I think an adjusted basis, a $1.25 this year, with the stock over $100, but that's adding back share-based compensation”
  • “the stock has gone from $240 to basically a little over $100 in the last six months… but pro-forma EPS number for 2022 during that same time period has gone from $2.40 to $1.20.
• Accounting trickery around Adjusted EDITDA and Adjusted EPS masks broken business models
  • Eg Uber recently reported an adjusted EBITDA profit despite losing, in real terms, $500 million in the Quarter
  • “going from half a billion-dollar real loss to telling people you're profitable is really kind of amazing.”
• Power of the Index and the reality that “the market always generally goes up”
  • “the average lifespan of a company I believe is something on the order of about nine or 10 years. And so the indices of course are always self-selecting”
  • “you are systematically exposed to the factors that drive equity prices higher while you're discreetly and idiosyncratically short the bad guys.”

Link to podcast