Tesla Unhinged

This is a great time to be investing in Tesla (TSLA) – but unfortunately from the short side. Of course, there is risk, a lot of risk. So far this year Tesla has risen over 550 percent and many momentum traders predict a continued upward trend. From our perspective at Cornell Capital, however, the stock has already reached “ludicrous speed”. Never a stock that traded on the basis of fundamentals, Tesla Inc’s stock has become so divorced from the underlying economics that it now exists in a kind of valuation twilight zone. At a market capitalization of over $550 billion Tesla currently has an equity value greater than that of the entire automobile industry (excluding Tesla) at the start of 2019.

Jump In Tesla’s Stock Price Due To The Inclusion In The S&P 500

The latest jump in Tesla’s stock price was catalyzed by the announcement of its inclusion in the S&P 500. On the news, the stock jump from $489.61 to $583.93 despite slowing sales growth, a falling market share in Europe, and recalls in the United States. Like the earlier announcement of the stock split, which as I documented in an earlier post available from Cornell Capital describing how the stock price ran-up 30 percent, the largely anticipated inclusion in the S&P 500 has had no impact on Tesla’s fundamentals. Nonetheless, in response to the non-fundamental event, the stock rose another 20 percent. In total, Tesla added approximately $250 billion, more than the total market capitalization of all but a handful of American companies, on two announcements that had nothing to do with company’s ability to profitability produce, sell, and service cars.

Tesla’s nearest comparable in terms of market capitalization is Warren Buffett’s Berkshire Hathaway (BRK-B). (Tesla passed Berkshire in terms of market cap on November 27, 2020.) In its last fiscal year, Berkshire had revenues of $327 billion and earnings before interest and taxes, EBIT, of $107 billion. In comparison, Tesla had revenue of $25 billion and an EBIT of negative $0.6 billion.

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Disclaimer: Cornell Capital Group LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or ...

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