Since the first positive earning was posted in the most recent quarter, Tesla‘s stock price has been on a rocket, tripling from around $50 to a historical high level of $150. I’ve been following Tesla since 09, long before it even went public, because I did a valuation on it as a class project. I remember I got a 30ish price from a multi stages DCF model, which is not too far from its IPO price later. Did I buy any of it afterwards? Sadly no.
Now the investment community starts to label Tesla as the next Apple and all market researches are giving it a buy, if not strong buy. Looking through the reason behind the buy ratings, I find they are usually backed up by the promising prospects of this revolutionary industry lacking of robust financial valuations. It is expected since Tesla is too young to evaluate using any fundamental analysis.
I know there must be some big story behind any stock could triple its price in three months. So let’s stop selling the story for a while, a more important question an investor should ask is how much it is really worth to support the promising story? Has the price already gone too far, making the story to expensive to buy? It’s a very hard question to answer, because ,as said before, any financial model to value an industry pioneer like Tesla needs so many assumptions that the uncertainty would make the prediction less reliable than a pure speculation number. In short, it’s still a story stock, and the major pricing factor is the human emotion.
Fundamentally, Telsa does look like another Apple in many ways. They are both revolutionary pioneers its industry. Similar to Apple changed the world of personal computers, Tesla is pretty much a doppelgänger in the auto industry. Alternative fuel cars never look so attractive to the main street, and Tesla’s premium user experience selling mode also made it the “coolest” kid in the playground. Both of them also has visionary company leaders. If there is any one can be called the next Steve Jobs, Elon Musk should be one, if not the only one. He created three companies that worth multi-billions (Paypal, SpaceX & Tesla) with his exceptional creative and foreseeing visions. No one dears to laugh his craziest idea because he always made it real. More recently, he unveils his newest “crazy” idea Hypeloop. It is no wonder that everyone wants a piece of Tesla. Recently Fidelity also added its position on Tesla.
Now priced at a forward P/E over 200, according to different research vendors, Tesla is very close to its best scenario price. In other words, it has a very small, or even no margin of safety. Some short sider now claims it’s good time to short it. I would hesitate to do so, because Tesla is more like a IT start up than a car maker. Similar to other IT star stocks (Amazon, for example), the price may sustain for a very long time, letting the intrinsic value catches up gradually. But one has to remember it is the human emotion backing up the price, so two straight bad news could wipe out all the growth premium (as seen in Netflix case). After all, if you held Tesla, it might not be a bad time to close your position.