Wednesday, February 23, 2022 4:05:20 PM
The Tesla stock price bubble could burst. Here’s why
There is no denying that Tesla (NASDAQ: TSLA) is one of the most popular stocks around. It routinely appears among the most traded stocks in the UK. But I think it is worth asking if the party might be slowing down for the electric vehicle (EV) stock now.
Tesla stock price performance
Consider this. It is down some 6.5% in the past month as I write this Monday afternoon. And its performance over the past year it is not too impressive either. The stock rose only 11% or so. Of course this point-to-point comparison obscures the fact that at one time during the past year, the stock rallied significantly. But it did fall fast too.
Steep valuations
I think it could continue falling, in fact. When I last wrote about the stock, admittedly a while ago in April last year, it had a price-to-earnings (P/E) ratio of an unbelievable 1,187 times. While P/E is not the only factor to consider when buying a stock, this was one of the deterrents for me when contemplating buying Tesla.
The stock’s tepid share price growth over the past year is also a sign that the Tesla share price had risen a bit too much since the November 2020 stock market rally. Interestingly, the company’s earnings have been robust in the meantime. In the third quarter of 2021, the latest period for which numbers are available, its net income rose by 4.5 times from the same time the year before. Optimism about the stock, it appears, is not rising with better performance or with the bettering prospects of EVs. In fact, its P/E has declined to a far lower 323 times.
Peers priced competitively
But even this is very high compared to the market valuations of its competitors. For instance, companies like General Motors and Ford Motor Company are committed to growing their EV presence. Unlike Tesla however, they are trading at P/Es of 7 times and 30 times, respectively. Of course their product profiles are different, which explains some of the difference in valuations. I cannot look away from the fact that they are strong brands that could give Tesla stiff competition in the near future, however.
If Tesla’s earnings ratio were to come-off closer to that of Ford, that would mean that its share price would have to fall 10 times from here! This sounds impossible, but I assure you it is not. In January 2020, before the pandemic started, it was exactly at these levels. The EV rally really only started a little over a year ago.
What I’d do
Just based on these numbers, I am still quite convinced that Tesla shares are not for me as long-term investor right now. Its earnings report is expected to show bettering performance, but if its stock rallies then I reckon it would be only for a short time. I am just staying away from it.
Recent TSLA News
- Tesla Listed for China’s Government Vehicles; Macy’s Acquisition Offer Raised, and More News • IH Market News • 07/05/2024 12:13:34 PM
- U.S. Index Futures Modestly Higher Before Key Economic Data Release; Early Closure for July 4th Holiday • IH Market News • 07/03/2024 11:01:33 AM
- Apple Joins OpenAI Board, Logitech President Opts Out of Reelection, and More News • IH Market News • 07/03/2024 10:59:39 AM
- Tesla Vehicle Production & Deliveries and Date for Financial Results & Webcast for Second Quarter 2024 • Business Wire • 07/02/2024 01:04:00 PM
- U.S. Stocks Close Higher; Nasdaq Outperforms • IH Market News • 07/01/2024 09:10:17 PM
- Nike Stock Drops 14% in Pre-Market; Nokia Acquires Infinera for $2.3 Billion, and More News • IH Market News • 06/28/2024 10:50:25 AM
- Interactive Brokers Loses $48 Million on NYSE, Amazon Achieves Historic Market Value, and More News • IH Market News • 06/27/2024 11:13:41 AM
- Doordash and Deliveroo Terminate Talks; Universal Announces UK Theme Park Plan, and More News • IH Market News • 06/26/2024 11:08:35 AM
- SolarEdge Stock Falls 13%, Wegovy Approved in China, Grail Nasdaq Debut, Apple Rejects Meta Chatbot • IH Market News • 06/25/2024 10:36:11 AM
- UPS Divests Coyote Logistics in $1.025 Billion Deal with RXO, Under Armour Agrees to $434 million Settlement, and More News • IH Market News • 06/24/2024 11:00:20 AM
- Trump Media Resells Stocks and Warrants; KB Home Exceeds Q2 Expectations, and More News • IH Market News • 06/20/2024 10:55:11 AM
- Fisker Files for Bankruptcy, Chegg Stocks Rise on 23% Workforce Reduction, and More • IH Market News • 06/18/2024 11:02:13 AM
- Goldman Sachs Raises S&P 500 Forecast for 2024; Disney Secures Deadpool & Wolverine in Chinese Cinemas, and More • IH Market News • 06/17/2024 10:49:12 AM
- Adobe Soars 15% Pre-Market; Visa and Mastercard Encounter Hurdles in $30 Billion Agreement, and More • IH Market News • 06/14/2024 11:21:47 AM
- Form 8-K - Current report • Edgar (US Regulatory) • 06/14/2024 10:02:55 AM
- Tesla Releases Results of 2024 Annual Meeting of Stockholders • Business Wire • 06/14/2024 03:10:00 AM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/13/2024 09:24:14 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/13/2024 08:22:12 PM
- Tesla Surges 5% in Pre-Market; Virgin Galactic Drops 9% Following Reverse Stock Split, and More News • IH Market News • 06/13/2024 11:24:25 AM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/13/2024 10:02:30 AM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/12/2024 08:50:43 PM
- Paramount Ends Skydance Talks, Oracle Shares Surge 8.7% on New Partnerships, and More News • IH Market News • 06/12/2024 11:19:10 AM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/11/2024 09:16:59 PM
- Form PX14A6G - Notice of exempt solicitation submitted by non-management • Edgar (US Regulatory) • 06/11/2024 08:47:02 PM
- FDA Panel Supports Eli Lilly’s Donanemab, Rio Tinto Expands Stake in Boyne Smelters, and More News • IH Market News • 06/11/2024 11:11:40 AM
Glidelogic Corp. Becomes TikTok Shop Partner, Opening a New Chapter in E-commerce Services • GDLG • Jul 5, 2024 7:09 AM
Freedom Holdings Corporate Update; Announces Management Has Signed Letter of Intent • FHLD • Jul 3, 2024 9:00 AM
EWRC's 21 Moves Gaming Studios Moves to SONY Pictures Studios and Green Lights Development of a Third Upcoming Game • EWRC • Jul 2, 2024 8:00 AM
BNCM and DELEX Healthcare Group Announce Strategic Merger to Drive Expansion and Growth • BNCM • Jul 2, 2024 7:19 AM
NUBURU Announces Upcoming TV Interview Featuring CEO Brian Knaley on Fox Business, Bloomberg TV, and Newsmax TV as Sponsored Programming • BURU • Jul 1, 2024 1:57 PM
Mass Megawatts Announces $220,500 Debt Cancellation Agreement to Improve Financing and Sales of a New Product to be Announced on July 11 • MMMW • Jun 28, 2024 7:30 AM