Although Tesla’s share price has risen 400 percent so far this year, an investment researcher is sounding the alarm. David Trainor, chief executive of New Constructs, an investment research firm, said Tesla was probably the most dangerous stock on Wall Street and that fundamentals did not support such high share prices and valuations.
“Whether or not they’re going to produce 30m cars over the next 10 years, get into the insurance business and have the same high profit margins as Toyota, even if you do believe it’s going to happen, the current share price still means bigger margins than that,” Mr Trena said. “
Based on the average selling price of a Tesla car, he said, its share price should mean a market share of 40 to 110 percent. At the current average selling price of $57,000, sales will need to reach 10.9m units in 2030 to achieve a 42 per cent market share. Tesla currently expects a price-to-earnings ratio of 159 times, he said.
“We think it’s one of the biggest, biggest ever, house of cards that’s going to collapse.”
He added that Tesla’s recent share split could prove dangerous for new investors who are just starting the stock.
“Stock segmentation doesn’t matter to value,” Trena said. They didn’t change the size, they just divided it into more parts. To be honest, I see this share split as a way to attract more, less sophisticated traders who are trying to catch up, and that’s not really a strategy. “
Tesla’s shares jumped 12 percent on Aug. 31 in a 1:5 split. However, Tesla’s shares fell more than 5 per cent last week after Ballie Gifford, the company’s largest external shareholder, reduced its stake.
Tesla’s more realistic valuation would be much lower than it is now, Mr. Trener said.
“I think if you look at a reasonable level of profit, the proper valuation should be about one-tenth of what it is now, ” he said. Tesla’s share and sales of electric cars in Europe did not make the top 10 because of changes in European law that strongly encouraged existing manufacturers to develop hybrids and electric vehicles. The same thing will happen in the United States. I think realistically, the real value of Tesla stock is closer to $50 than $500. “