Up 50% in a month! What’s going on with Tesla stock?

The Tesla stock has increased by half in just one month. Christopher Ruane considers some pros and cons of adding the carmaker to his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Illustration of flames over a black background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the past five years, Tesla (NASDAQ: TSLA) has been an incredible share to own, increasing in value by 1,505%. But even over the past month alone, Tesla stock has soared 50%.

That means that if I had invested £10,000 in Tesla in the first half of June, I would already be sitting on a holding worth around £15,000.

Created with Highcharts 11.4.3Tesla PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

What has driven this sudden price surge – and ought I to join the ride ahead of the latest quarterly production and sales numbers, due out this month?

Should you invest £1,000 in Tesla right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesla made the list?

See the 6 stocks

Investors are out in force

In short, the Tesla stock price has gone up for a simple reason. Lots of people want to buy it! There has not been any large-scale news about the fundamentals of the business performance over the past month that I think could justify the surge in price we have seen.

The last significant news was the release of a first-quarter update in April. The shares fell 15% in the several weeks following those numbers, suggesting the market was underwhelmed by them. No wonder. Revenues fell 9% year on year, while automotive revenues were down 13%. The gap is explained by growth in the energy storage and services arms of the carmaker.

Net income attributable to common stockholders more than halved. Positive free cash flow in the same quarter last year was replaced by a negative free cash flow of $2.5bn this time around.

Valuing the potential

Still, am I missing something?

A 50% rally does not typically come out of nowhere. Tesla is not some minnow in a neglected corner of the stock market, but a closely watched business with a market capitalisation north of $800bn.

My theory is that investors are going back to the fundamentals of the investment case for Tesla stock. Strong growth in services revenue shows the potential for Tesla to make that a critical profit generator for its business, as Apple and others have done.

Growth in energy storage underlines the progress Tesla is making in that field. It has sizeable competitive advantages in energy and can benefit from rising customer demand.

Meanwhile, a decline in automotive revenues and deliveries can be explained away by the increasingly fierce competition in the electric vehicle market. That is inflicting pain now, in terms of lower pricing and lower profit margins. It may also explain the lower volumes. But if it forces weaker players to exit the market at some point, it could ultimately benefit those left standing.

Not the right value on offer for me

Still, as a long-term investor, not a trader, the current price tag the stock does not look like a bargain to me.

I think it has a wide array of competitive advantages, from its proprietary technology to a large installed used base. But so far, business this year has been challenging and I think that could continue for some time yet.

A price-to-earnings ratio of 67 does not properly reflect those risks, I feel. So I will not be adding Tesla to my portfolio.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple and Tesla. 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.

More on Investing Articles

Investing Articles

Wow! IAG shares are undervalued by 47%, according to analysts

IAG shares have surged over the past 18 months, but analysts are pointing to more growth. Dr James Fox takes…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 shares to consider for an ISA before 5 April!

These FTSE 100 and FTSE 250 shares are on sale today! Here's why long-term Stocks and Shares ISA investors should…

Read more »

Investing Articles

How I’m building a new second income for 2035

Millions of us invest for a second income. Here are the steps Dr James Fox is taking in order to…

Read more »

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »