I’m no expert, but to me it seems strange to buy when currently over valued. A p to e ratio of 700 is awful. Most people target a ratio of 25. I can see a bit of a reason Tesla is an exception, but not that much. I also don’t like to buy stocks that have been rapidly rising for several years. Many people hop on these rapidly rising stocks to late, and it’s generally too late when everybody knows about it. Again, I could be wrong. There still might be lots of money to be made.
Part of my hesitance for Tesla is that I just don’t understand why the price is what it is. Their market cap is about 20x their annual revenue. Just from a business perspective, I wouldn’t buy someone’s business for 20x their annual revenue.
I don’t want to say the price is all hype, as I don’t completely understand it, but that’s what I’m leaning towards. It just doesn’t make sense to me that Tesla is worth more than Toyota.
To be clear, I think lots will make money on this, but at the cost of others losing a lot of money, not because of company performance. It’s a timing game.
With the exception of your last paragraph, I think this is a very good post. No one should just buy a stock because some yahoo on the internet recommended it. Even if I’m the yahoo. If you don’t understand the company and the market opportunity, don’t buy.
This might not be your cup of tea, but I invite you to do research on Tesla and the markets they are in. I believe you will learn what a tough road ahead all the incumbent automakers, including Toyota, are facing. They have tremendous debt and all their infrastructure and business pipelines are set up for producing ICE cars. For the first decade of Tesla’s existence, they were the long shot. Now the tables have turned, ALL the incumbent automakers are now the long shots. Ford, GM, Toyota, Honda, Nissan, VW, Daimler. Of those names, maybe two will exist in 15 years. It’s really that bad. And it’s not Elon’s fault. Elon’s goal is not to win, it’s to speed up the transition. He spent years inviting and urging the other car makers to join him in the mission. They wouldn’t budge because they didn’t want to put money into R&D and the retooling. The old cronies wanted to line their pockets, the future be damned. Those are the guys @galgenstrick should hate.
It looks just as bad for the fossil fuel industry. The fossil fuel industry is going away and Tesla is the best positioned company to take advantage of that. Tesla is the leader in battery technology and they will soon be the leaders in battery production. They are in great shape for solar when that starts scaling and becomes profitable. Tesla may end up being the biggest auto company and the biggest energy company.
Look into the potential of autonomous driving. To me it’s less clear what that market opportunity will be, but I’m sure even the most pessimistic outcome will be highly profitable for Tesla. They are the leaders (despite what you might hear) and they are years ahead of the competition. Autonomous driving will lead to margins to rival Apple. Toyota currently has the best margins in the auto industry but in a few years, Tesla will have margins Toyota could never dream of.
I believe Tesla will be the biggest company in the world and for that reason, I think a PE ratio of 700 is justified.
While I agree with a lot, I do think there is uncertainty with Tesla. Those other auto makers have more going on over seas with ev tech. They may or may not be successful, but if they are, it may be an issue for Tesla.
I’m not opposed to perhaps investing some money with them, it would be with my gamble money (10 percent of investments). I made a lot last year with gamble money (a bit over double). I put it into short term stuff like cruise lines, oil companies, banking, and airlines.
If you need this cash to purchase a house in the next 12 months or so, whoever recommended finding a high-interest savings account at a promotional rate and switching after the promo terms end offered the best advice of this thread. Anything else is too risky IMO. I’m a huge Tesla and Elon Musk fan, but purchasing at such an inflated PE is a massive gamble. We’re at a stage where some traditional automakers are starting to make appealing EV options for customers (Volkswagen, Audi and Lexus top of the pack) and my concern is that they can use revenue from their ICE vehicles to price their EVs very aggressively to gain market share.
If you wanted to throw a certain percentage of your savings into the market, I’m a big fan of REITs (Real Estate Investment Trusts). Realty Income (O) pays just under 5% monthly and I see upside over the next 6 months. Also a big fan of WP Carey (WPC), paying just under 6% and with solid price appreciation to come.
How is your credit? Leveraging this as an asset is far better than trying to scrimp and save yourself. If you have good/great credit look for alternative funding. If not, look to build it up.