Tesla Motors Inc (TSLA): Is The Stock About To Double Again?

tesla motorsJay Taylor: Shares of electric car maker Tesla Motors Inc (NASDAQ:TSLA) have been all over the place recently. The stock fell around 25% from September to October and is still trading 15% below its 52-week high.

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Despite this turmoil the stock is still up 100% over the past year and more than 600% since the start of 2013.

So why are some experts making public calls that Tesla stock is about to double again?

Billionaire Ron Baron, the hedge fund manager behind the Baron Capital Group, indicated in his fund’s most recent quarterly report that he is a “fan” of both Tesla and its CEO Elon Musk, and is investing accordingly.

He argues that the company is doing it right, focusing on quality rather than quantity, which he believes is building a foundation for long-term success. He also argues that the company commands a significant “first-mover” advantage as the undisputed leader in the market for electric vehicles.

Since Baron expects the electric vehicle category to grow rapidly, he expects Tesla’s long-term prospects to be very strong.

Today the stock trades at around $246 per share. The company is finally profitable but, without a year of earnings, we can’t compare its valuation to that of other stocks based on a price-to-earnings (P/E) basis. We can, however, compare it to other stocks and the broader markets based on its price-to-next-year’s-earnings (forward P/E) basis.

Tesla is trading at a forward P/E of just under 69. Compare that to the forward P/E ratios for several major market indices and you’ll quickly see why many investors believe Tesla stock is very expensive.

  • The tech-heavy Nasdaq 100 trades at a forward P/E of 19.85
  • Even the small-cap heavy Russell 2000 trades at a forward P/E of 19.32
  • The S&P 500 trades at a forward P/E of 17.05

Earlier this month James Albertine of Stifel Nicolaus predicted that Tesla will rise to above $400 per share, nearly double its price when he made the prediction.

One of the metrics that makes Tesla so attractive to Albertine is the company’s gross margin. With margins already sitting at around 28%, he is encouraged by Tesla’s plan to introduce a few new features that will make an already $110,000 vehicle sell for even more money.

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