Tesla Stock is up 11% today more than $70, so far an Ark invest led by Cathy woods now raising their prediction for Tesla to be a $7,000 start by 2024.
I have a feeling it will be there before that, and also other entities like ark go up and all kinds of analysts bringing up the stock prediction, and the short sellers are not happy.
Well, I don’t care, but I can tell you some of the reasons are obviously you know the obvious one the quarter for results in terms of earning and in terms of deliveries exceeding the expectations production for this year five hundred thousand cars.
China Coronavirus effect on Tesla Stock:
Due to China now, it would be slow because of the coronavirus, but eventually, when things get to settle in China, a prediction also if I want to give you some numbers that actually do this story in 2019, this was worldwide sales 2.2 million sales in 2019.
Let me just give you two good ones Tesla Model 3 dominating this is worldwide dominating the market with 300075 and 14% market share of Tesla Model 3.
The next one was the BAIC EU, with 111,000, which is more than twice of them.
Tesla dominates the world market by 17%; imagine exactly present when everything becomes even in the United States, it’s more than 60% domination of the Tesla brand.
Well, that explains a lot, so the predictions the results the AI fully self drive the technology the software upgrade the style and, of course, the miserable failure of the competition as Cathy woods said in a recent interview with Bloomberg.
Is Tesla Stock a bubble?
Well, guys, Tesla has done it yet again they destroyed analysts estimates in their fourth-quarter earnings, and as a result, the stock continues to climb to new record highs, and as a result of that, I’m seeing a lot of people including some of the media and analysts asking the question of whether Tesla stock is currently in a bubble.
Now full disclosure I do own Tesla stock myself, it’s about 12% of my portfolio, and I am currently up close to 200% on that position despite owning it for actually less than a full year so you can probably see why that question is getting asked a lot and me.
Tesla Stock Prediction:
I will take a look at how much the stock has climbed and how high the valuation is right now we’ll do a quick refresher on their future potential, and then I’ll finish up the article with my overall conclusion and let you know whether I think that Tesla stock is in a bubble right now or not, and what I plan to do with my position going forward, so I hope you guys enjoy this.
let’s start by looking at the stock and that a high valuation okay so as you can see
here the stock climbs by another 15% this past week which was mostly fueled by 10% rally on Thursday following very impressive earnings that helped lift the stock to new record highs and we’ll come back to the price and valuation in just a second, but for the fourth quarter of 2019 they beat analyst estimates on both earnings and revenue by very significant amounts as you can see on this screenshot
here for the full year, it means that sales climb by 14% year over year which is technically a slowdown in growth, but this was a transitioning year for them as they shift their main focus away from selling higher-priced vehicles like the S and X over to ramping up development and production of their mass-market vehicles like the Model 3 and Model Y which are a lot cheaper but according to Yahoo Finance that we’ll reaccelerate 2020 and 2021 to around 31% and 26% respectively.
Tesla Model Y
This is obviously due to the launch of the Model Y
this year which is a crossover SUV targeting the largest vehicle segments in the world and to be honest, I think that their growth can still surprise to the upside despite already being so high as I think that people are still probably underestimating how well the model y will sell and we’ll talk more about their growth prospects in just a second, but I want to go back to that quickly.
Report from CNBC
Report from CNBC as they noted that
Tesla also stated that they expect to report not just positive cash flow going forward but even positive net income continuingly with only possible exceptions when they launch new products and have ramped up production for them which may be understandable depending on the situation, and I need to say that this reminds me so much of Amazon which is my second-largest stock because every time that Amazon starts reinvesting in their business to fuel higher growth I always see so many people freaked out about it and freaked out about their profitability and their valuation and I think that’s a bit short-sighted because if this was a company that was no longer growing or their business had peaked then yeah the primary focus needs to be valuation and profitability and things like that.
When you have a company like Amazon that is already dominating so many different markets, and it’s still growing at insanely high rates especially for their size then you have to realize that they’re doing it to become more dominant now so that they can rake in much higher profits in the future, so that’s a criticism that I tend to have about so-called value investors because a lot of times they focus just entirely on the valuation and profitability and they tend to be a little short-sighted and they kind of missed the long-term picture.
So I think that you need to have more of a balance of everything to have that complete picture and that’s what these comments from Tesla remind me of and to be honest, I like these comments because I think it’s true I think if they were to launch more disruptive products in the future, then they should absolutely focus more heavily on that right now gain market share disrupt the market become more DOM and then in the future you can focus more heavily on profitability when the time comes, but even still this is clearly a company that is already becoming much more sustainably profitable.
that’s a huge deal for Tesla because that’s always been the ultimate barre thesis from short-sellers is that this is not a sustainably profitable company, but that is no longer the case, so all these kind of short-sellers and bearers really need to find a new angle to attack Tesla because this is a profitable company.
Positive free cash flow
Now, they’ve reported positive free cash flow in five of the last six quarters which is a really big deal because this is a company that is just getting started
and are in the very early stages of growth, in any case, the result of these much stronger fundamentals has led to the stock climbing to new record levels any rising valuation to go along with it it was only about half a year ago that Tesla was trading for less than $200 a share yet today they trade for over 650 which is a climb of almost 270% that’s pretty crazy.
And that’s also led to the stock having an average price target from analysts surveyed on
that is close to half the current price and differences that large is usually reserved for bubble territory stocks which explains why so many people are feeling concerned now during the earnings call Elon Musk did sort of address this by taking a shot at analysts saying that individual investors tend to have deeper more accurate and overall better insights than many analysts
Individual Investors have Better Insight
and being one of those individual investors myself I agree with him on this point as I feel that most analysts are either corrupt or lack any long term vision as they’re mostly focused more heavily on short term gains so that they can look good for their clients at that moment rather than you know focusing on the long-term picture but as much of a Tesla bulla as I have to be fair to the Bears here and admit that the valuation is in fact pretty high especially when compared to legacy auto manufacturers when looking at sales their price to sales ratio
is just a little less than five which is pretty high for EPS ratio although it has technically been higher in previous years as they are still slightly their five-year average but when compared to legacy auto manufacturers like GM and Ford the difference in valuation based on sales is pretty staggering, and the exact can be said when looking at profits as Tesla’s Ford price-earnings ratio is close to 50 while Ford and GM are only around 7 and 5 respectively.
Tesla in 2019 and 2020
In my opinion in fact, in 2019 Tesla was the only company of the three that grew their sales while the other two had large drops of negative 3% and negative7% respectively and in 2020 GM is expected to bounce back a little by 6% before will still be negative while Tesla will skyrocket to 30% growth and the same can be said about profit growth given that EPS for bothFord and GM are both expected to be negative on average over the next 5years while Tesla is not only positive but by an immensely higher amount.
Legacy Players vs. Tesla
so you’re essentially left with a situation where Tesla is growing into their valuation while legacy players are being forced to develop electric vehicles to remain relevant and keep their businesses from deteriorating but if they you know because they waited so long if they want to compete with a company like Tesla on things like range performance technology and also price then they’re most likely going to have to sell those electric vehicles at a loss while also cannibalizing their ice vehicle sales which have historically been how thing you know obviously how they’ve raked in all of their profits that’s their high margin vehicles.
While their electric vehicles are extremely low margin if not negative meanwhile Tesla doesn’t have that problem at all because they’re already selling their vehicles for profits they continue to disrupt the market and they don’t have to deal with any of these issues of cannibalization because they don’t sell any ice vehicles themselves.
They’ve gone full fool in on electric vehicles and autonomy, which is the future of the market.
Tesla has Lead
Look don’t get me wrong I’m not saying that these legacy players would just disappear and no longer be relevance at all I actually think that a lot of them will adapt and will eventually become competitive but I still think that Tesla has such a lead they will continue to remain dominance as a market leader in electric vehicles and in autonomy.
In my opinion, when looking at all of this I think you can’t really judge this stock as a bubble by just evaluation alone I think there are other things that you also have to take into consideration like How well Tesla is performing right now as a company what their future potential looks like and how much you yourself you know believe in them as a company and as an investor how do you feel about them and whether or not you think that they will make mistakes going forward and if you think that you know these legacy competitors will just kind of rise up and destroy Tesla but these are questions that you kind of have to ask yourself as an investor when trying to evaluate whether Tesla stock is in a bubble right now or not.