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TSLA Stock After the Run-Up: The Bullish & Bearish Cases for Tesla

Tesla at all-time highs? OK, let's not do anything rash ...

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Tesla Motors (TSLA) is the king of the investing world. TSLA stock is at all-time highs following 31% gains for the year-to-date, which is one heckuva achievement when you consider …

  • tesla-motors-tsla-stockThat’s coming against a broader market that’s down this year, as measured by the S&P 500, off more than 2% so far in 2014.
  • That “year-to-date” is just six weeks into the year.
  • That performance is coming in a pretty rough start to the year for other automakers. Ford (F) and Toyota (TM) are each off around 4%. Honda (HMC) is off 12%. And General Motors (GM)? The worst of the bunch, down 15% in just a few short weeks.
  • That it’s coming against weakness in the car market in general, and electric vehicles in specific. January was a cruddy month for vehicle sales, including Nissan’s (NSANY) Leaf and the Chevrolet Volt.

I should be on cloud nine right now. I picked TSLA stock as my entry into the 10 Best Stocks for 2014 contest, in which nine other financial names and I picked one stock to buy and hold throughout 2014.

Instead, I’m trying to stave off panic that TSLA stock has peaked too early.

Truth be told, there are a few things that could keep new buyers out of TSLA stock for the time being, and that have given me a little pause. So, here’s a look at the potential short-term headwinds … and then we’ll remind ourselves why we should still be long-term bullish on Tesla:

3 Reasons to Ditch TSLA Stock

Valuation: Tesla’s push to $196.56 as of Monday’s close has left TSLA stock at outright gaudy numbers. Tesla technically has no trailing price-to-earnings ratio because the whole earnings part of the equation is negative over the past four quarters … but TSLA stock is trading at 123 times Wall Street estimates for 2014 earnings. I can’t really stress this enough: A decently sized company that is sitting at all-time highs, and that has gotten to said all-time highs by running up 400% in roughly a year, still trades at a triple-digit P/E. Sure, Amazon (AMZN) is proof positive that you can defy valuation gravity for years, but AMZN is the gross exception, not the norm.

Relative Size: That valuation is even more troubling once you put it up against the cold reality that is Tesla’s inflated size. Namely, Tesla currently sports a market cap of $24 billion — meaning TSLA currently is worth more than 40% of $55 billion General Motors. That’s remarkable when you consider that GM delivered 2.8 million vehicles in the U.S. and 9.7 million vehicles globally in 2013 … while TSLA sold just 22,450 units of its Model S. We’ll flip this over to Baskin Financial’s David Baskin (@davidpbaskin) for more on just how crazy that discrepancy is:

If #Tesla sold 1 million cars a year and made $3k after tax per car, it would trade at same multiple as $GM. That’s only 4,000% more sales.

— David Baskin (@davidpbaskin) February 10, 2014

#Tesla currently has market cap of $817,000 per vehicle sold. On this basis $GM with 10M vehicles/year is worth $8.17 trillion or $5,100/sh

— David Baskin (@davidpbaskin) February 10, 2014

The thing is, valuations like this don’t actually mean a damn to anyone while the gravy train keeps rollin’. But figures like this can start mattering in a hurry when a momentum stock stops showing signs of breakneck growth. Tesla’s upcoming earnings report — it’s due out after the bell on Wednesday, Feb. 19 — could be such an occasion.

“Don’t Be Greedy”: TSLA stock has registered gains of more than 30% in a little more than a month. I was actually long TSLA before the contest started, so I’m sitting on even more. Frankly, I’m too conservative not to at least take partial profits — and if you have a significant chunk of Tesla stock, I’d urge you to do the same, just because it’s incredibly unlikely that Tesla will be perfect forever, which means you’ll have a chance to buy back in at better prices. It’s a gamble, but then, so’s all investing. I just prefer not to let the house take all my winnings.

If you’re long TSLA and you’re already making your way to the comments section to call me an idiot, stay your hand. I said “partial profits,” and again, I fully admit that I’m a fiscal hermit crab. Truth be told, I’m still bullish Tesla in the long term. Why? (Next page)

Article printed from InvestorPlace Media,

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