One of the most polarizing stories in the entire market over the past few weeks has been the rise of Tesla (TSLA). After hitting a bottom of around $454 on April 2nd, Tesla has risen to $2213 before their 5-1 stock split. If you purchased a mere 2 shares at the low for a total of $908 and sold it yesterday, your total value would be $4,426.
For experienced investors, a rise like this doesn’t come without a historical crash, but so far it’s only gone up. It’s made people like myself wonder, is this in any way warranted? Does Tesla deserve to be worth $412 billion?
Tesla’s valuation is larger than most other car companies combined, so from that vantage point it doesn’t make much sense. Some analysts though are saying that we can’t exactly compare Tesla to other car companies. Tesla is one of only electric car companies on the market and has industry leading technology. 5 years ago, some people thought autopilot driving was crazy, now it’s normal in a Tesla. The advances they have made are incredible and are bringing the future closer everyday.
Elon Musk once said that owning anything other than a Tesla would be financially insane. Let’s rewind a few years. Think back to the early 2000’s, how many cell phone companies were on the market? All of the sudden, Apple released the iPhone, one of the biggest innovations in human history. Nowadays, it’s a little crazy to own anything other than an iPhone in the US. Is it possible that in 10 years owning anything other than a Tesla will be crazy? It’s certainly not out of the question.
This is the only way I personally see Tesla’s valuation at the moment being reasonable. If you also look at the EEON stock scores, this doesn’t exactly look like a stock that should be up 300% in under a year, while except for the momentum score.
Doing a quick run through, scalability is super low showing that the company is struggling to grow at a good rate, which is also shown through the growth score of 48. The most scary numbers in my opinion are the profitability and value numbers. When I look at companies I want a profitable business along with the feeling that there’s an element of value when putting my money in. Tesla offers none of this.
I would also be dumb not to talk about my generation and the affect we have when a stock like Tesla gains momentum. The chart below is from Robintrack.com, they aggregate account data to show how many Robinhood users are currently holding a stock.
As you can see, as Tesla rose in price, so did the amount of people holding the stock. Around 125,000 people held Tesla in the beginning of 2020, as of 8/13 a little of 550,000 people held the stock.
There are many arguments against Tesla’s rise, I personally believe it’s overvalued and due for a pullback, but I love to look at the bull position and ask, could the valuation be justified?
This piece is in no way analytical. It was written to provide a different perspective on Tesla’s historic rise. I personally do not hold any position in Tesla. I do hold a position in Apple.