- Daily Zen
The high flying tech stocks are readying to land on earth soon, including Tesla, which has had a tremendous run, but investors warn that its assets' performance does not warrant such confidence
The pandemic has hit the world markets hard, but tech stocks seem to be impervious to the downturn. The last several months have seen many tech moguls and companies becoming billionaires many times over.
Even though the bourses are running high on these stocks, most analysts are getting bearish about the bull run. One of the many such stocks is the EV auto specialist, Tesla.
David Trainer, the CEO of New Constructs, has called it a house of cards, which might fold over any time.
RBC Capital’s Joseph Spak speaking after the stock split of Tesla, said, “We still view Tesla as fundamentally overvalued and having to grow into its valuation.” Tesla stock split 5-for-1 on August 11. Stock splits don’t add any value to a company, but rather increase the number of shares and decrease the stock price by an equivalent amount. Of the 36 analysts surveyed by FactSet, just 19% are bullish, 31% are bearish, and 50% are neutral about Tesla.
On May 1, CEO of Tesla Elon Musk himself tweeted, “Tesla stock price is too high imo.”
“Whatever best-case scenario you want to paint for what Tesla’s going to do” whether they’re going to produce 30 million cars within the next 10 years, and get in the insurance business and have the same high margins as Toyota, the most efficient car company with scale of all-time,” he said. “Even if you do believe all that is true, the stock price is still implying that profits are going to be even bigger than that.”
According to Trainer, at the current average selling price of Tesla cars at $US57,000 and assuming that nearly a million cars are sold by 2030, its market share is only 42%.
Also, with the pandemic interfering, Tesla is trailing in sales and net incomes are just $25.7 billion and $368 million. This means that investors have already priced in a wildly optimistic growth story for the company over the next decade.
In the past one year, Tesla stock has gained 800 percent in value. Its share value is hovering around $420 since the last closing.
After some high early in the last three months, Tesla has had a volatile past seven days. It saw its largest shareholder Baillie Gifford, pull out its stake from the company due to rules limiting the weight of a single stock in the company.
It has had four straight days of stock decline runs with a massive stock sell off.
Trainer said: “Tesla doesn’t rank in the top 10 in market share, or car sales, in Europe for EVs and that’s because the laws changed in Europe that have strongly incentivized the incumbent manufacturers to crank up hybrids and electric vehicles.”
“The same is coming in the United States. I think realistically we’re talking about something closer to $US50, not $US500, as a real value,” he added.
Tesla has not even made it to the list of S&P 500 when it added three new names to its Index.
John Hussman, investor and former professor who’s been predicting a stock-market collapse — thinks a reckoning is long overdue.
“You know it’s a bubble when you have to edit the Y axis on all of your charts because valuations have broken above every historical peak, and estimated future market returns have fallen beyond the lowest points in history, including 1929,” he said.