After struggling during the summer, the outlook for Tesla (NASDAQ:TSLA) stock has dramatically improved. With the company reporting a quarterly profit, and CEO Elon Musk out as chairman, optimism has returned. Tesla stock has risen by over 17% since the Oct. 24 earnings report.

However, from a valuation perspective, TSLA remains pricey. Moreover, the high failure rate of start-up car companies should serve as a warning to stay cautious. Still, with profits forecast and sales and production in growth mode, one could make a case for a speculative position in TSLA stock.

Tesla Stock Has Recovered From the Summer Slump

Despite my mostly bearish views, I have to admit that the prospects for Tesla stock have improved in recent weeks. Removing Musk as chairman goes a long way in reducing the turmoil. Mr. Musk seems to reflect both the genius and the shortcomings of the company’s namesake, Nikola Tesla. Both men improved the world with their creative talent. Unfortunately, this type of ability rarely translates into business acumen. Hence, any move to limit Mr. Musk more to creative endeavors can only help TSLA stock.

Moreover, the company surprised Wall Street by reporting a quarterly profit. This comes as welcome news, as high bond prices had reduced the company’s ability to attract outside funding. Moreover, analysts believe the company will earn $6.17 per share in fiscal 2019. This takes the forward price-to-earnings (PE) ratio to about 55.

Take Heed of the ‘Vision Premium’

In a previous article, I mentioned that Tesla stock trades on a “vision premium.” Simply stated, because Tesla inspires the masses and brings the latest technology to the marketplace, investors willingly bid the stock up to stratospheric highs.

No stock has mastered the vision premium better than Amazon (NASDAQ:AMZN), as it has enjoyed this premium for most of the last 20 years. However, most stocks that enjoy this premium come crashing down. Tesla peer GM (NYSE:GM) saw this in the 1920s. Cisco (NASDAQ:CSCO) also traded on a vision premium during the dot-com boom in the late 1990s.

These stocks went on to fall by over 90% and experience single-digit PE ratios after the boom years. GM stock trades at this low multiple today. Furthermore, thanks in large part to Tesla’s vision premium, it exceeds GM’s market cap — despite producing less than 2% as many cars as GM.

My issue with such premiums is the difficulty in measuring them. Admittedly, the company’s quarterly profit makes the vision premium easier to evaluate. However, in most cases, this gives prospective buyers a metric on how overpriced a stock has become.

The Near-Term Case for Tesla Stock

Wall Street detractors write off all investing as gambling. While I usually disagree with that viewpoint, I tend to agree with it in regard to Tesla stock. Given the history of both vision premiums and car companies in general, I caution against treating TSLA as a buy-and-hold stock.

That said, analysts forecast full-year profits in 2019 and massive profit growth through at least 2021. Given those factors, I see a case for a speculative position in Tesla stock. Consensus earnings for fiscal 2021 stand at $17.69 per share. At today’s price, that brings the 2021 forward PE to just above 19. At these levels, only a severe market downturn would destroy the near-term case for Tesla stock. If one holds some funds for speculative positions, purchasing Tesla stock could make sense in that case.

The Bottom Line on Tesla Stock

Amid the risks and the drama, one could make a case for betting on Tesla stock. To be sure, TSLA remains risky even with its new-found profits. Forecasts still leave the 2019 forward PE at 55. Moreover, Tesla’s industry has experienced a high failure rate for start-ups (and bankrupt established companies for that matter) going back to the late 1800s.

Still, looking beyond 2019, analysts predict massive increases in profit. Given the history of the auto industry and the high PE, I would not recommend a long-term investment in TSLA stock. However, the increased profits and the enduring vision premium could make it a winner for the foreseeable future.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.