When it comes to delivering for his shareholders over the long term, Elon Musk has knocked it out of the park. Tesla (NASDAQ: TSLA) stock is now up over 150% over the last 12 months. Since 2016, the gain is over 2,700%.
Sadly, I’m not one of those shareholders, aside from my holding via Scottish Mortgage Investment Trust. Should I be taking a leap of faith and buying the shares myself?
Tesla stock: worth the risk?
There’s certainly no shortage of reasons for thinking the Tesla share price can continue ascending. The company has quickly become the poster child of the electric vehicle revolution. And thanks to the headlines generated by Cop26, our adoption of these cars may be even swifter than previously thought.
Despite past concerns, the company’s financial situation is clearly improving as well. Tesla’s latest Q3 update revealed a 57% rise in revenues to $13.8bn. Net income also hit $1.62bn — almost 400% higher than over the same period in 2020.
Having said this, it’s also not hard to find reasons — both general and specific — for steering clear.
Even though there’s no rule to say they can’t keep rising, US stock valuations are looking very frothy indeed. And with businesses across the globe struggling with supply chain disruption and higher costs, the risk/reward trade-off looks increasingly unfavourable for tech stocks in particular.
Musk’s behaviour also continues to raise eyebrows. Only today, it was confirmed that the visionary leader had sold $5bn of shares in his own company after conducting a poll on Twitter. This move has worried investors and helps to explain why Tesla stock has fallen 13% in value in the last five trading days.
Naturally, Musk won’t care. As a Fool with finite capital, I can’t afford to be so relaxed.
Of course, Tesla isn’t the only way of getting exposure to the automotive industry. Actually, I think online marketplace Auto Trader (LSE: AUTO) might offer a far more comfortable ride.
Today, the FTSE 100 member announced it had achieved its best-ever set of six-monthly revenue and profits figures. At £215.4m, the former was 82% above that achieved over the same period in 2020. It was also 15% above that logged in the year before the pandemic struck. Helped by record spending by retailers, operating profit soared 121% to £151.7m, with margin rebounding to a staggering 70%.
While Tesla’s crown may slip eventually, I’d say AUTO’s ongoing dominance looks more assured. Today, it reported a 14% increase in ‘cross-platform minutes per month’ to 633 million. This represents over 75% of the whole market. Put another way, car buyers spend almost nine times more time on Auto Trader’s site compared to its nearest competitor.
One for the traders
Taking all this into account, it’s perhaps no surprise that the AUTO share price soared over 11% in early trading, justifying my bullish call last month.
While this pales in comparison to Tesla’s recent performance, the fact that the £6bn-cap’s business model is based on recurring revenues lends it far better visibility, in my view. What’s more, the company’s ability to serve all vehicle buyers gives it a defensiveness that Musk’s company lacks.
Chuck in consistently high returns on capital and a bullet-proof balance sheet and I continue to regard AUTO as a great UK growth share. As superb as returns have been, I’ll leave Tesla stock to the traders. But I’d buy AUTO.
Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Auto Trader. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.