It was a dizzy year for investors. Tesla (NASDAQ: TSLA). On the one hand, the December high of nearly $480 seems like a distant memory. Since then, Tesla shares have fallen 33%.
Meanwhile, inventory is still high from a long-term perspective. In fact, it’s now 77% more expensive than a year ago.
I’m thinking I’ll be back to that $480 level and get a little higher in order to break the $500 mark. Should I invest?
Not financial rationality, but many emotions
Some stocks move primarily on financial basis. If a company issues a profit warning, its share will fall. As sales rise, stock prices rise.
Tesla is different. Many of those inventory movements seem to be only loose (if any) related to financial performance. They are driven by investors’ views on what we may achieve in the future, and sometimes in the future. I think in some cases, there is a tendency to be a lot of emotion rather than rationality.
As an example, consider the role of the CEO. How much will the stock collapse if he escapes by bus (or self-driving Tesla) tomorrow?
My guess is that it is a crater. That alone flags the risk of this stock’s huge key man. Many values are attached to the current company leadership, not the company itself. But leadership can change.
Great potential and proven track record
Even at current stock prices, Tesla trades at a price of 177 (P/E) ratio. That makes me unfairly expensive. However, the stock needs to rise 53% by $500 to reach $500, meaning an even larger P/E ratio.
Clearly, investors are now valued by the company based on that outlook. From self-driving cars to robotics, Tesla has the potential to significantly improve many of its sales under development.
It’s also not an incredible startup. Tesla has already demonstrated that its automotive business can scale from scratch to large scale, overcome significant hurdles and increase profitability. Therefore, its proven features add reliability to your plans for further business development.
But we have been apart for at least years, but these business areas have become important contributors to the company’s revenue, if they do. The power plants are growing rapidly, but I think that is already reflected in the current stock price.
Meanwhile, the company’s car sales fell dramatically last year in the first quarter of this year. It takes a lot of effort to just return to equal keel, let alone returning to high growth as historically seen. The electric vehicle market is much more competitive than it was a few years ago.
To sum it up, Tesla now looks like a car company whose work has been cut out, a decent power storage business with strong growth prospects, and other ideas that have yet to prove its commercial viability.
Based on that, the current P/E ratio seems smooth to me. If there is enough news and encourages investors’ hopes, Tesla stocks could reach $500. But reasonably, my concern is that it is not underestimated and not underestimated. I don’t invest.
