It’s no secret that there is often a lot of “talk” in the stock market – many times we see stocks make big moves on headlines that may or may not be completely true. The latest news item to come out of the rumor mill has to do with Tesla (TSLA) potentially going private. This is a stock I have been following for years, so I wanted to share my thoughts on the recent buzz.
First, let it be known that I am a huge fan of Elon Musk, so I may be a little biased in my view on the company. At the same time, though, my ultimate goal in investing is to always make decisions that will result in profits. As much as I would like to buy stocks that support my views, that doesn’t always align with my strategy.
If a stock does not offer attractive reward potential, I will not buy or recommend it.
The good news about TSLA is that it aligns with my views and offers big upside potential. This is a company that I believe is and will continue to be a leader in electric vehicles. Its vehicles are head-and-shoulders above the competition, and there’s no question that its technology is one of a kind.
Tesla is also one of the leaders in self-driving vehicle technology, which I am confident will be reality sooner than later. The amount of real-life driving data that the company has been able to gather over the years puts it in position to be a true game changer.
Ultimate Potential Won’t Change
Ultimately, I do not believe that whether TSLA is a public or private entity will have an effect on its long-term potential. That said, you can look at this from two different perspectives.
From the position of Musk and other company insiders, I believe going private is the right move. Because the majority of the investing public does not understand TSLA, short sellers and other market analysts take any and all opportunities to voice their negative opinions on it. And as a result the company has had to deal with nonstop bashing for years now. Going private will allow management to focus on the big picture and not have to deal with public on an ongoing basis. In other words, they can ignore the noise.
From the position of investors, Tesla going private will be a major windfall in the short term as the stock will likely be taken off the market when it’s trading around $420. From today’s prices, that represents a gain of more than 20%. That’s nothing to shake a stick at, but considering I believe TSLA has the potential to climb north of $500 in the coming years, patient long-term investors would certainly benefit from the stock remaining public.
Consider this as well. Tesla will likely be profitable for the first time ever next year, and by 2022 it is expected to earn nearly $25 a share. A P/E ratio of 25 for a high-growth company is warranted and would put the stock at $625 in the next few years – a gain of more than 80% from current prices.
In the end, I consider TSLA a good buy right now regardless of what management decides to do down the road. There remains huge upside potential in both the short and long term.
