“Watt’s Up” Tesla Investors?
Of all the stocks on the market, Tesla is by far the most infamous. With a super cool CEO and amazing cars, one may think the stock can only see better days. Despite this, however, many investors, especially those who prefer fundamental analysis are simply baffled by Tesla’s evaluation.
Fundamental analysis focuses on a companies, financial statements, health, and competitors. Alternative perspectives which are much of what Tesla’s rise is built on prefer making decisions based on hype and technical analysis. This is all important because as of today, Tesla has generated massive 754% return over the past year and 1,300% over the past five years, making it, by fundamental standards, tremendously overvalued. In fact, JPMorgan Chase has recently doubled down on their bearish call for Tesla. Specifically citing a price target of $90, or a whopping 85.25% decrease from the current price. So, where’s the evidence? Well one of the go to indicators for many investors is the P/E ratio of Tesla. A (P/E ratio) or Price to Earnings Ratio measures a company’s current share price relative to their earnings per share and indicates what a purchaser of the stock is willing to pay per dollar of earnings from the company. The average P/E ratio based on long-term averages of the S&P 500 is around 15X. Tesla’s P/E currently sits at a staggering 1,173.
This may seem impossible at first but when accounting for the current attitude of investors it actually makes some sense, not only are there more amateur individual investors than ever before, but these investors often play their investments off excitement and hype leaving balance sheets out of the equation. Some would call this nonsensical, but it is what it is whether you like it or not, and it will be interesting to see how the future of investments goes. This is a much bigger picture and today’s Tesla story is just a current example of investor attitudes. So, who do you think will control Tesla’s direction? Will the dedicated “Musketeers” of Tesla prevail, or will ‘ol reliable fundamentals win?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
