Tesla’s stock (TSLA) is pushing to new record highs today, bringing the valuation close to half a trillion dollars.
Is it worth that kind of market capitalization?
Tesla (TLSA) Stock Price
Over the last week, since it was confirmed that Tesla will be added to the S&P500, the stock has been surging, and it has reached new highs today.
As of the time of writing, Tesla was up 7% today alone and up 20% since last week.
The automaker has added more than $100 billion in market capitalization over the short period of time.
Now, Tesla’s market cap stands at $497 billion, which is just shy of half a trillion dollars.
For comparison, that’s more than Toyota, Volkswagen, and BYD, the three next biggest automakers, combined (via Top 25 Automakers by Market Cap by u/brandude87):
Is TSLA getting ahead of itself?
Back in May, CEO Elon Musk said that Tesla’s share price was “too high” in a series of tweets — wiping out billions of dollars worth of Tesla’s valuation.
At the time, the stock was trading at the equivalent of ~$150 after the 1 to 5 stock split.
The stock has more than tippled since Musk made the comment, which was made amid the first wave of the pandemic after the stock market crash.
Tesla’s stock has been one of the best performing stock with the pandemic and not without good reasons.
The automaker’s sales have been the least affected by the pandemic amongst major automakers, and it quickly returned to growth after it was able to bring its production capacity back online.
However, the valuation is hard to justify.
Based on Tesla’s last quarter, the company has an annualized revenue of $35 billion. Therefore, it is trading at 14 times its annual revenue.
As for the price-earnings ratio, that’s closer to 1,000 times — something that would make most fundamental investors cringe.
But Tesla investors don’t care. Why?
It’s a story stock.
Tesla investors don’t like the comparison of the fundamentals with other automakers because they argue that Tesla is not just an automaker.
Elon describes the company as a series of different startups in the transportation and energy sectors, and startups are harder to value.
An investment in Tesla is more an investment in a sustainable future with electric transportation and renewable energy.
There are not many pure sustainable plays like that, and Tesla has become the poster boy for it.
In short, I think Elon’s comment about the stock being too high is still accurate.
However, there are some examples of companies with much higher valuations, like Apple, which is nearing $2 trillion.
Apple has obviously much better fundamentals than Tesla, but it’s hard to argue that it has a more appealing story than the latter.
What do you think? Are you bullish on Tesla’s stock even at these new highs? Let us know in the comment section below.
Disclosure: I own TSLA shares.
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