The Tesla Inc (NASDAQ: TSLA) earnings announcement is scheduled to take place on Wednesday following market close.
The United States-based electric vehicle producer has experienced unprecedented success. While some investors consider Tesla overvalued, other market participants, as featured in the WSJ article, see a bubble.
Let’s take a closer look at these theories.
Is the Tesla share price overvalued?
According to one analyst, the Tesla share price is “dramatically” overvalued. JP Morgan (NYSE: JPM) analyst Ryan Brinkman believes that the share price has been pumped up by the market based on factors that have nothing to do with the fundamentals of the business.
In terms of determining the value of a company, there are different approaches to take. It all starts with a fundamental analysis. Metrics pulled from this analysis, like price-to-earnings (P/E) numbers and balance sheet data, helps investors form an opinion of whether a company is overvalued.
People who argue that Tesla is overvalued believe that the share price is moving based on investor perception, opposed to fundamentals.
Considering the Tesla share price one-year performance, it’s no wonder investors are curious about the company’s fundamental value. Tesla shares have shot up nearly 650% over the past year, pricing in at US$846.64 at last market close.
Is the electronic car industry a bubble?
The Wall Street Journal‘s article compared today’s markets with the dot-com bubble, discussing 5 market qualities that have signified or led to a bubble in the past. Among them, it mentions “exponential growth in the price of story stocks”.
The term ‘story stock’ is used to describe a company everyone already knows about because it’s in the news so much. Some investors think that this type of hype overvalues the share price because it starts to be based more on people’s opinions and expectations opposed to literal data.
As a company that makes news headlines daily, it’s a pretty safe bet to regard Tesla as a story stock. The debate comes in when people try to determine what that means for the share price.
The Elon Musk factor
Considering Telsa’s monster performance last year, it comes as little surprise to learn a few weeks ago that CEO Elon Musk is now the richest man in the world.
Musk does not seem to have a problem figuring out how to spend his money. The Tesla SpaceX subsidiary recently announced it will be drilling for natural gas near the company’s Boca Chica spacecraft development facility. Musk further tweeted last Friday that he’s going to donate a $100 million prize “towards a prize for best carbon capture technology” with details on the way. I expect we’ll learn more along with the announcement.
Am donating $100M towards a prize for best carbon capture technology
— Elon Musk (@elonmusk) January 21, 2021
One thing Tesla and Elon Musk have consistently delivered is surprises. We’ll find out on Wednesday about what’s been happening and what’s coming up.
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Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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