Those who follow markets have certainly noticed the dramatic rise of Tesla’s stock price this year. Year-to-date, it is up from $86 to $546 per share. Is Tesla overvalued or is the price justified?
The “Most Valuable Car Company”
By market cap ($286 billion), the electric car maker is the most valuable car company in the world. Has the company managed to increase its business value by 72% in 7 months? If so, what a feat! What’s the secret? Has the company in just 7 months deepened its moat by a quantifiable 72%? Boosted management competence? Optimised it’s board?
The company surpassed Toyota as the most valuable car company by $4 billion. Last year, Toyota sold 30 times more cars and its revenues were more than 10 times higher. In order to justify Tesla’s current stock price, it needs to be the dominant car maker of the world for many years to come.
All The Talking Heads
If you listen to the shamans (analysts) in this case, you’ll get nowhere. Here’s a Barron’s article where 10 shamans give their take and price it anywhere between $300 and $1500.
As an intelligent investor, you know better than to listen to the talking heads. If you buy the stock at its current price, what do you expect your returns to be? If you by some miracle are right on the margin of safety, you’re betting the company is worth at least $572 billion in reasonable amount of years. Over half a trillion dollars. This would make the company larger (by market cap) than Coca Cola, Chevron, McDonalds, Intel, P&G, Walmart and Visa to name a few.
Conclusion
By now, you may conclude that I’m not a bull on TSLA. This does not, however, mean that I’m not a bull on electric cars in general or Tesla as a competitive car maker or Elon Musk.
The TSLA stock just proves to me (again) that Mr. Market has not changed. He gets excited and depressed on a moments notice. When you catch him at his most erratic behaviour, use it as an opportunity.
So is Tesla overvalued? Perhaps I’m wrong. Maybe Mr. Market indeed has not made a mistake, and the price is justifiable. That’s OK. I don’t have a problem with being wrong and I’ve certainly been wrong plenty of times.
-IGTSKasimir
Further Reading
Warren Buffett – The Partnership Days (1956 – 1969)
Philip A. Fisher – Lessons From The 15% Man
The Best of Ben Graham – Security Analysis
Phil Town – The Compounding River Guide
Margin of Safety – The Most Important Thing
Intelligent Investing = Thinking In Probabilities
The Emotional Stages of a Value Investor
If you wan’t to support my writing endeavours, click the green “Subscribe” link below to be notified on all my future posts. It’s completely free, and you’ll be richer, wiser and happier. Cheers!
