Cars made by Tesla (NASDAQ: TSLA) are known for their rapid acceleration. The Model S Plaid can go from zero to 60mph in under two seconds. 2023 has seen the carmaker accelerate fast in another way. Since the start of last month, Tesla stock has soared 93%.
That sort of performance is remarkable. Can it keep going – and ought I to pile into Tesla stock now on that basis?
Sales jump
Few shares almost double in a matter of weeks without some huge piece of transformative news. If the stock market is efficient, share prices ought to broadly reflect what investors in the aggregate think a given company is worth.
Different investors may have contrasting views. That is especially relevant for a company with strong growth prospects that can make it difficult to estimate future business performance with any degree of accuracy. So, a given share price may bounce around.
But I do not see a 93% increase adding around $340bn in market capitalisation as a share ‘bouncing around’.
I also do not think there have been developments since the start of 2023 that have almost doubled the firm’s underlying valuation. Tesla announced last month that deliveries in 2022 showed 40% annual growth. That is a strong performance – but was not unexpected, given that the company had already released delivery numbers for most of the year.
Positive sentiment
So my view as to why Tesla stock has jumped is that investors are warming to its story again after a period of rapidly cooling enthusiasm.
After all, despite nearly doubling in 2023, the shares are still 24% below where they stood a year ago.
While business performance is strong, I do not think on its own it can account for such a large jump in Tesla stock in recent weeks. In other words, I see the move as reflecting investor sentiment more than business fundamentals.
I’m not buying
As a buy-and-hold investor with a long-term approach, I prefer to consider the underlying valuation of a company rather than how popular it might be in the market at any given moment.
Last year Tesla made $12.6bn in net income. That is certainly impressive and reflects a strong rate of growth. But it means that the business, which commands a market capitalisation of over $650bn, trades on a price-to-earnings (P/E) ratio of over 50.
That is actually much a lower P/E ratio than at several points in recent years. The Tesla business is doing well, with car sales volumes booming and strong progress in other areas like large-scale static battery installations.
However, the valuation still looks high to me. The company faces risks including growing competition and declining prices in the electric vehicle market.
If Tesla bulls continue to focus on the good news from the company, I think the stock may rise further in 2023 even after its meteoric climb so far. But on a fundamental basis, I do not see the stock as attractively valued. I will not be adding it to my portfolio.
