Several investment opportunities have fooled me pretty badly over the years. Regular readers may still be laughing about how I dissed Bitcoin (CCC:BTC) when it hovered at about $225. Another losing call I confess to involves Tesla (NASDAQ:TSLA) stock.
And so, my fessin’ ’bout Tesla: In August 2016 I wrote about the House of Elon Musk, “Dangerous curves ahead.” Its price then? $44 per share. Its price as of this writing? More than $860. Had I bought $1,000 worth, I’d be sitting on close to $20,000, with enough to pay my son’s college tuition for a year. Ugh.
Now I can be kind to myself and say hindsight is 2020. But that empty space where the returns could be isn’t exactly encouraging a bout of self-compassion. Meanwhile, is it simply too late to get in on the action? TSLA stock has enjoyed a year-over-year run-up of 520%. But that’s been pretty much without pause, which makes me wonder when a correction is coming.
Investors did see something of a speed bump on Jan. 27, when TSLA stock fell by as much as 7% in after-hours trading in the wake of its earnings miss for the fourth quarter of 2020. Wall Street had expected $1.03 cents per share, while the automaker reported 80 cents. That’s a substantial strikeout.
But the company also posted a revenue beat. It delivered 499,550 vehicles in 2020, just 450 below its half-million goal. New versions of the Model S and X are on the way. And it capped 2020 with profits in every single quarter.
And so begins a Tale of Two Teslas.
TSLA Stock and Mixed Signals
Maybe it’s because I come from a dysfunctional family. I’m always waiting for the other shoe to drop. Or in this case, the brake shoe. Over and above the latest earnings miss, there’s another worrisome number to chew on: Tesla’s cliffhanging price-earnings ratio of 1,517. In other words, ownership in TSLA stock equates to $1,517 and change spent per $1 of company profit.
That’s steep by any measure. It’s also a value investor’s nightmare. Once asked if he was thinking about buying Tesla shares, Warren Buffett was pretty crisp: “No.”
What’s more, the consensus of analysts cited by CNN Business see a 12-month price target of $512. Ouch. That would amount to a plummet of 34%. And yet, this must be weighed against the guidance Musk gave during the company’s earnings call. He expects 50% average annual growth in vehicle deliveries in the years ahead, and an even higher percentage in 2021.
Insofar as analysts are concerned, this may point to what’s known as a “climax top.” When a growth stock accelerates at an overheated pace, investors can expect prices to fall. Where the climax for TSLA stock is I can’t say and won’t predict. But don’t be surprised some weeks later if, looking backward, the new quarterly report turns out to be the first domino.
Analysts Say Hold
For now, Wall Street analysts sit squarely on the fence with TSLA stock. While 11 call it a buy, eight label it a sell. Then you have the 15 others who call Tesla a hold. The way I interpret this is that if you currently own Tesla stock, you can expect turbulence ahead that will drive share prices down, but eventually relent.
Yet having followed Tesla for some time, I can testify that the company defies expectations. Back when quarterly profits were as rare as dodo sightings, TSLA stock still managed to generate investor enthusiasm. It’s what you might even call a “groupie stock.” Musk has a following of sorts as a celebrity CEO. He is building vehicles many Americans aspire to these days: eco-friendly and uber-sporty.
People don’t just buy a Tesla Model X or TSLA stock: They believe in it. Company numbers be damned. But then again, was Wall Street ever a rational place?
TSLA Stock and EV Revolutions Per Minute
You’d have to be an investment hermit taking a roadside snooze in a ’70s gas guzzler to miss the fact that the EV sector is burning up right now. A host of companies went public in 2020, from Fisker (NYSE:FSR) to Lordstown Motors Corp. (NASDAQ:RIDE).
Others, from Chinese automaker Nio (NYSE:NIO) to hydrogen fuel cell maker Plug Power Inc. (NASDAQ:PLUG) shot up more than 1,000% last year. So if nothing else, TSLA stock has become a bellwether for the rest of the EV sector.
Wait a minute: The rest of the sector? Yup. Bernstein analyst Mark Newman recently told Barron’s that he believes EV stock moves are “becoming self-reinforcing with Tesla.” That is, if Tesla goes up, other EV makers do, too.
So, here’s my interesting if somewhat strange thesis: As TSLA stock goes, so goes the EV sector. The same enthusiasm that energizes other manufacturers sends investors running towards Tesla and vice versa. And if Tesla sneezes, the whole lot of them stand to catch a wicked flu.
I don’t think that’s about to happen.
As Tesla Turns the Corner
Meanwhile, TSLA stock may represent one of those rare buys that deserves an asterisk, in that the regular rules of profit and loss, earnings and revenue, don’t always apply. Investors buoyed the stock long enough to make the company an industry leader. Firmly ensconced in that position, it’s not about to retreat.
Competitors may infringe on its turf, but by and large they will always be referred to as “the Tesla of Romania” or “the Tesla beater” or “Tesla’s little brother.” Make up your own name, it may be better than any of mine.
Just make sure while you’re at it to either hold on to your TSLA stock if you have it, or buy it with an eye towards the end of the year. I believe that by then, this sharp little roadster will have turned the corner for good.
On the date of publication, Lou Carlozo held long positions in NIO and TSLA. He did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
