Tesla Stock Still Too High Despite Elon Musk’s Downgrade (TSLA)

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Tesla (TSLA) tumbled Monday after Morgan Stanley said it agreed with founder Elon Musk that TSLA stock is too high, but the selloff wasn’t deep enough to create a buying opportunity.

tesla motors tsla stockHeck, TSLA stock is still about 40% higher than the last time Elon Musk said it looked overvalued.

Putting aside the debate over whether a CEO should be talking down stock in his own company, TSLA does look overpriced. If anything, the market didn’t take Morgan Stanley or Elon Musk seriously enough.

In October of last year, Elon Musk went on Bloomberg TV and warned that TSLA stock was out of whack with the fundamentals. Here’s a key quote from Musk:

“The stock price that we have is more than we any right to deserve. It’s difficult to predict where it goes in the short- and medium-term, but I do feel good about having the company achieved that value more in the long-term.”

Elon Musk said TSLA stock rose too far too fast — a common problem for an exciting and perhaps revolutionary publicly traded company. The allure of getting in on the ground floor for imagined stratospheric returns is too much for lots of retail investors to ignore.

And yet they’re almost certainly buying high.

Crazy Valuation for TSLA Stock

In early September, Elon Musk reiterated his views on TSLA stock’s overheated levels. Here’s Elon Musk again:

“I think our stock price is kind of high right now to be totally honest. If you care about the long term, Tesla, I think the stock is a good price. If you look at the short term, it is less clear.”

Interestingly, the market didn’t really act on Elon Musk’s warning until analysts at Morgan Stanley agreed with him in a note to clients this week. The analysts maintained their price target of $320, they warned investors to expect a bumpy ride. As Morgan Stanley said:

“We are big believers in Tesla’s strategy, but we do not expect the stock to appreciate so consistently and one-directionally from here.”

Gee, ya think? With a beta of nearly 1.4, TSLA stock is roughly 40% more volatile than the broader market. Just have a look at the ups and downs TSLA stock has carved out since the last time Elon Musk talked it down:

TSLA
Source: MarketWatch

As we’ve argued before, there’s little doubt that Tesla stock represents something truly revolutionary and exciting. Tesla Motors has reanimated the market for electric vehicles at pretty much the perfect time, with sustainable energy and climate change coming to the forefront of the public’s mind.

However, TSLA stock is priced so high that steep pullbacks —  much steeper than Monday’s 10% drop — are all but certain. The current forward P/E makes TSLA more than five times more expensive than the broader market. Even with a long-term compound growth forecast of 40%, Tesla stock still is pushing it.

We’ll say it again: If you own TSLA stock at current levels, you’re going to have to hang on through some serious volatility before it really pays off.

As of this writing, Dan Burrows did not own a position in any of the aforementioned securities. 


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/tesla-tsla-stock-elon-musk/.

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