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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
- 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
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/10/2024 09:00:37 PM
- Apple Showcases AI at WWDC 2024, Nvidia Stock Split Starts Today, and More News • IH Market News • 06/10/2024 11:29:44 AM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/07/2024 10:46:36 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/07/2024 09:23:23 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/06/2024 09:23:35 PM
- Nvidia Becomes 2nd Most Valuable Company in the USA, ASML Takes 2nd Spot in Europe, and More News • IH Market News • 06/06/2024 11:34:59 AM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/06/2024 01:51:51 AM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/05/2024 11:16:39 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/05/2024 08:16:08 PM
- Apollo Buys 49% of Intel’s Irish Plant for $11bn, BlackRock and Citadel to Create Texas Exchange, and More News • IH Market News • 06/05/2024 11:41:36 AM
Last Shot Hydration Drink Announced as Official Sponsor of Red River Athletic Conference • EQLB • Jun 20, 2024 2:38 PM
ATWEC Announces Major Acquisition and Lays Out Strategic Growth Plans • ATWT • Jun 20, 2024 7:09 AM
North Bay Resources Announces Composite Assays of 0.53 and 0.44 Troy Ounces per Ton Gold in Trenches B + C at Fran Gold, British Columbia • NBRI • Jun 18, 2024 9:18 AM
VAYK Assembling New Management Team for $64 Billion Domestic Market • VAYK • Jun 18, 2024 9:00 AM
Fifty 1 Labs, Inc Announces Acquisition of Drago Knives, LLC • CAFI • Jun 18, 2024 8:45 AM
Hydromer Announces Attainment of ISO 13485 Certification • HYDI • Jun 17, 2024 9:22 AM