British investors still can’t get enough of Tesla (NASDAQ: TSLA) stock. The electric vehicle (EV) maker was the third most traded company in the first three months of the year, beaten only by FTSE 100 favourites Legal & General Group and GSK, according to platform AJ Bell.
Tesla was the only non-FTSE 100 stock in the top 10 most traded list, which perhaps isn’t surprising. Tesla and founder Elon Musk are rarely out of the headlines and they have made early bird investors seriously wealthy.
Investors continue to love it
As recently as five years ago, its shares traded at just $20. Today, they stand at $161.20, a stunning 703.19% higher.
If I’d invested £5,000 in May 2018, I’d have a mighty £35,160 today. That’s a stunning return, especially after taking into account last year’s meltdown. It works out as an average compound annual growth rate of 51.8%.
If I had invested £5,000 a year ago I’d have just £2,769 today, a loss of 44.62% (and that’s despite this year’s 49.12% rebound).
But what really matters is where the Tesla share price goes next. Can it grow at more than 50% a year for the next five years?
The obvious answer has to be no. It’s easier for a small company to grow at a rapid multiples than a big one. Today, Tesla has a market-cap of $505bn. If it repeated the growth of the last five years, that would soar to $4trn.
That’s not beyond the bounds of reason – Apple has a market-cap of $2.62trn – and Musk has done amazing things. But it won’t be easy. However, even if its share price growth eases, Tesla can still prove a brilliant investment.
Production is motoring along totalling more than 440,000 vehicles in the first quarter, up from 310,048 in Q1 last year. The Tesla Model Y was the best-selling EV in both Europe and the US in Q1. Total revenue grew 24% over the year to $23.3bn.
It’s still the future
Operating margins fell to 11.4% due to price cuts, against 19.2% last year, although management insisted the rate of decline was “manageable”. It claims that improved production efficiency and logistics should limit the downside.
Tesla is throwing its money and genius at the future, investing in autonomous vehicle software, rolling out its Cybertruck and a raft of AI-enabled products, and building a new energy storage Megafactory in Shanghai. Musk has overreached with his purchase of Twitter and his space rocket fetish, but then he always has.
Established car makers are desperately trying to catch up with the electric revolution, threatening market share, while the lack of EV charging infrastructure could hit sales across the industry.
Given its volatility, I’m wary of buying Tesla stock when it’s flying, as it has been this year. Yet while its current valuation of 50 times earnings is high, it’s still modest by its own standards. At one point it touched 1,000 times earnings.
The truth is, I should have bought Tesla years ago. If I buy it today, I’ll only be trying to compensate for my earlier mistake. If Tesla continues to make investors rich, I’ll just have to take it on the chin.
