Tesla? Not Even for Free

 | Jul 15, 2017 | 10:00 AM EDT
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Suppose somebody offered you 100% ownership of their company for no cost whatsoever. The only caveat is that you'd need to keep it for a long time with no chance of simply trading out of its shares.

Would you take it?

If the firm was profitable and figured to stay that way, you'd be happy to be an owner. That way you'd collect profits while continuing to build value over time.

Firms that are losing money might make you hesitant to commit, even for no financial outlay. When you own a deficit producer, the company's losses become yours.

A friend of mine asked me what I thought of MindBody (MB) , a software provider to the fast-growing health and wellness industry.

MindBody came public on June 19, 2015, priced at $16 per share. It opened that day at $16.22 but dropped more than 17% to $14.22 by 4 p.m. ET that day.

The firm lost $25.5 million in 2014, then burned through another $36.1 million in 2015, the year it IPO'ed. Last year saw a nice revenue jump yet MB lost another $23 million. Value Line sees more than $15 million in current-year deficits.

Ouch. If this was a non-public entity, its owners would have seen their net worth decline by over $100 million in about four years.

How crazy is the current stock market? MB bottomed at $9.14 a share in the summer of 2015. As of 1 p.m. ET Thursday, MB shares were selling for $25.50. Go figure.

Will MindBody become a huge success? Maybe. Can you make a rational guess at what it's truly worth, if anything, right now? Not really. Traders buying MB now are simply playing the "greater fool" game, hoping somebody will be willing to take it off their hands for more than they paid, regardless of its value.

The main good news on MB? As of March 31, total debt stood at $15.3 million while corporate cash was $57.9 million. It can afford to suffer losses for a while longer in the hope of future profitability.

Few readers at TheStreet may care about MindBody. The principle involved in the discussion is the same for widely followed and played Tesla (TSLA) .

As with MB, TSLA shares have seen a major rise despite putrid long-term financial results. Unlike MindBody, TSLA owes about $8 billion, with more than $7 billion of that classified as under five years in maturity.

TSLA's cumulative cash burn has been more than $3 billion to date. Capital spending needs are enormous, making large new borrowing a necessity.

CEO Elon Musk is like the Pied Piper. He toots his horn and followers send money to fund his companies' losses. That is a very dangerous way for a company to operate. If the credit market freezes or the investment climate toward TSLA, in particular, deteriorates, the ability to roll over debt could dissipate quickly, or vanish altogether.

No rational person would likely accept ownership of the whole company for free if they couldn't sell shares to others. Would you be willing to shoulder billions in current and future deficits on the chance that TSLA will make it back someday, maybe?

Last week's IPO of Blue Apron (APRN) showed how fickle the investment crowd can be. The once-hot issue priced at $10, the low end of the projected range, and was down to $7.40 (down 26%) two weeks later. APRN is just one more money-losing firm that may never turn a profit.

Refuse to be seduced by casino-like action. Think like an owner.

If you wouldn't be comfortable owning 100%, with no exit strategy, you probably shouldn't be willing to buy even 100 shares. You don't lose anything by simply refusing to play a stupid game.

This commentary originally appeared Friday on Real Money Pro. Click here to learn about this dynamic market information service for active traders.

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