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Is Tesla a Rational Stock to Invest in?

Is Tesla a Rational Stock to Invest in?

As more investors have been interested in the American electric vehicle and clean energy company, Tesla, the risk factor is still unclear to most of them. Tesla, Inc. designs, develops, manufactures, and sells electric cars and energy storage products for home and solar grid usage. It operates primarily in the US, China, and Norway, as well as many other countries. 

On August 11, 2020, the historical daily share price, and data for Tesla (TSLA) have been adjusted for a split, while the latest closing stock of December 11, 2020, was $609.99. On December 8, 2020, the all-time high Tesla stock closing price was $649.88. The stock’s 52-week high price was $654.32, which is 7.3% above the current share price, while the lowest was $70.10, which is 88.5% below its average price. The average within the same period was $261.73, while Tesla’s P/E ratio was 1259.18 on December 11, 2020. 

)TSLA annual stock price(


In a move that could trigger a collective of approximately $73 million in new purchases, S&P announced that it will add Tesla shares to the S&P500 on December 21, 2020. Tesla’s stock price has risen more than 57% since the November 16 announcement, and the S&P500 has increased by almost 5%. 

(TSLA annual percentage change)


How Tesla is Doing Compared to other Car Manufacturers

The P/E ratio is not enough for the comparison between Tesla and its competitors. In fact, the comparison requires taking a closer look at the enterprise value of EBITDA ratio and the price to sales ratio. These ratios are indicated in the chart below of Tesla and other major automakers like Toyota, General Motors, and Luxury carmaker BMW. 

The competitors have sold vastly more cars than Tesla, even BMW, the smallest by the market cap, delivered 675,680 cars in the third quarter, nearly five times higher.

How Tesla is Doing Compared to other Tech Companies

As we mentioned previously, Tesla is not just a carmaker, it is a tech company. For that reason, when comparing the price to sales ratio with other hot stocks in the tech sector, such as Nio, Zoom Video Communication, Shopify, and Nvidia Corp, Tesla’s stock valuation becomes more reasonable and justified.

In Conclusion

TSLA stock has clearly run up too fast too soon. The company is aiming to be much bigger in the future. However, it will need to grow at a faster pace in order to justify the current share price. Tesla’s investors are more speculative at the current time, and the stock is heavily influenced by emotions, thus it is bound to be very volatile.

 

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