Tesla (NASDAQ:TSLA) has been on a wild ride in recent weeks. On Feb. 4, Tesla stock came within $31 of hitting $1,000. Since then, it’s fallen about $150.
Many financial professionals, including those shorting Tesla’s stock, believe its shares are incredibly overvalued at the moment. While I don’t think there’s any question that its stock is testing the limits of what a car manufacturer should be worth, Tesla’s biggest fan continues to beat the drum for a much higher stock price.
How High Can Tesla Stock Go?
Recent comments by Ark Investment Management Chief Investment Officer Catherine Wood suggests that the firm believes that Tesla stock should hit $7,000 by the end of 2024. Under Ark’s bull and bear scenarios, Tesla’s share price will reach $15,000 and $1.500, respectively.
Even in the bear-case scenario, the stock would generate an average compounded annual return of 14%. I’d definitely be happy to ake that return because the odds of stocks performing as well in the future as they have in the recent past is not very high.
In 2018, Vanguard predicted that the annual real return of U.S. stocks in the 2020s would be around 3%. In the 2010s, the S&P 500 delivered an average total annual return of 13.1%, more than four times Vanguard’s expectations for the next decade.
So it’s likely that investors who want to generate above-average rates of return are going to have to take some above-average risks to get them.
There is no question Tesla should be one of those risks.
Navellier’s Argument Against Tesla’s Current Valuation
InvestorPlace contributor Louis Navellier recently told investors when he’d loo to sell Tesla stock.
Interestingly, despite the fact that he believes Tesla’s valuation is way overblown at six times its trailing 12-month sales, the veteran investment pro recommended that investors continue to hold its stock until it’s included in the S&P 500. That’s because its inclusion in the index will force passive index mutual funds and ETFs to buy its stock, sending its share price higher.
According to Navellier’s best guess, Tesla’s addition could come as early as July, but only if it generates profits in Q1 and Q2,
While I understand the sentiment for holding on to Tesla to obtain higher profits, I don’t think Tesla is a good stock to play Russian Roulette with.
In my opinion, dyed-in-the-wool fans of Tesla, like Wood, should hold the shares indefinitely. On the other hand, those who believe it’s overvalued should sell it now.
Why $7,000 Isn’t Out of the Question
In my most recent article about Tesla, published last month, I stated that the company’s share price would continue to move higher because of its leadership role in the electrification of transportation. Everything else, including profits and subsidies, was mere noise, I contended.
I wasn’t trying to be flippant. I’m fully aware that profits matter. However, when it comes to a company that’s a beacon of hope for millions around the world, it’s hard to put a hard-and-fast number on its valuation.
In a previous article about Tesla, published in November, I said I liked its chances of hitting $400 in early 2020. It pierced through $400 on Dec. 19 and hasn’t looked back.
Back in September 2018, I suggested that when Catherine Wood turns bearish on Tesla stock, perhaps everyone should sell it. Well, the ARK Innovation ETF (NYSEARCA:ARKK) currently has Tesla as its number one holding with a weighting of 9.83%. Wood is definitely not abandoning ship.
In fact, with her apparent $7,000 price target, Wood’s made it clear where she thinks Tesla stock is headed. For investors who can can handle the volatility (and many can’t), I believe Tesla is still a long-term buy.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
