Tesla Inc (NASDAQ:TSLA) is a bubble stock, and I don’t like bubble stocks. There is no fundamental argument to explain how TSLA stock commands a $63 billion market capitalization, considering that this outfit sports trailing-year revenue of $7 billion and no profits, ever.
I am too old to wait and see if bubble stocks validate the valuation down the road, as Amazon.com, Inc. (NASDAQ:AMZN) did 10 years after the dot-com bubble popped.
But even if I were 23 again, I wouldn’t like bubble stocks. They’re signs of trouble in the market.
When little is working but one thing seems to, otherwise sane people pile into the one thing. Once everyone is on board, the bubble stock falls hard, and those who have lied to themselves about the bubble quickly find their gains become losses.
That is TSLA stock today. There is no rational reason for a company like this to be up 70%-plus in 2017 alone, except the bubble.
Time Loves a Hero
They say time loves a hero, but only time will tell. In the bloom of the bubble, human flaws are erased, rational arguments go by the board, and the story becomes everything.
At this point in our story, everything our hero touches looks like genius. A streaming music service, like Pandora Media Inc (NYSE:P)? Genius. Solar shingles, like those Dow Chemical Co (NYSE:DOW) sold out of last year? Brilliant. The autopilot team leader just quit? Musk must have someone better in the wings. Maybe Nicola Tesla himself is coming on board. Don’t tell me he’s dead, I just saw him on Amazon video.
Tesla is dependent on its Model 3 for growth, but when will you get yours? There’s a website for that, but it doesn’t really know much more than I do. The rumor of a Chinese factory sparks buying — never mind that almost everyone in China is getting their trade secrets lifted in exchange, and joint venture partners are required.
Even a picture can get people going ooh and aah and send TSLA stock skyward. Here’s a picture of a possible roadster to be produced in two or three years.
Buy, buy, buy?
Silly Things Are Said
It is at this point in a bubble’s evolution that truly silly things get said. Like a stock with assets of $25 billion and zero operating cash flow is headed for the moon.
Put this from Ron Baron, said to be “Silicon Valley’s Warren Buffett,” on your bulletin board:
“I think it is going to be $500 to $600 next year, and it is going to be $1,000 in 2020.”
Please note that the man owns 1.6 million shares of Tesla stock, bought at around $208.
Would you prefer your loony predictions be more technical? Here is Todd Gordon of TradingAnalysis.com: “Tesla just continues to show amazing relative strength,” he says.
Well, yes, bubble stocks do that.
Right now, you can get someone to say anything you want about TSLA stock. There are seven analysts saying buy, and six saying sell, and another seven throwing up their hands and saying hold. Don’t look at the earnings estimate for the current quarter — that shows a loss of $1.62 per share.
What do numbers know? Fake news.
When Will TSLA Stock Pop?
Here is the thing about bubble stocks. You can’t predict when they will pop. I can’t tell you when the last sucker is on board, when Ron Baron might want to sell, when it will all come crashing down.
Between now and then, you might make money. Between now and then, you might call me an old fool. Between now and then you might laugh in my face.
Have fun. I’ll be sitting on the sidelines enjoying a cold drink. Remember, I’m the idiot who bought Ford Motor Company (NYSE:F).
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long AMZN and F.