Anyone who bought Tesla (NASDAQ: TSLA) stock five years ago would be sitting on a gain of more than 1,100% today. But they’d have been on a bit of an up-and-down ride between then and now.
The price climbed sharply higher when CEO Elon Musk got his foot in with the new US adminstration. Investors seemingly assumed his relationship with President Trump should help give his companies a boost.
But even now, Tesla stock is still only a little above the highs it reached in late 2021. Anyone who happened to buy at the peak back then would have had to wait three years just to break even.
Electric vehicles
The future for vehicles is surely electric. But a few things make me suspect Tesla shareholders might be in for a disappointing ride in 2025.
One of them comes from Donald Trump himself. In his inaugural address, he said “We will end the Green New Deal, and we will revoke the electric-vehicle mandate, saving our auto industry“.
On top of his oil pledge to “drill baby, drill,” that doesn’t read like good news for the electric vehicle (EV) industry to me. Or, specifically, for Tesla.
Another thing is Tesla’s super high valuation. We all expect high-tech Nasdaq growth stocks to be on high valuations, for sure. The kind of growth we could see from them has to be worth a handsome premium.
But Tesla’s valuation makes the rest of the so-called Magnificent Seven Nasdaq stocks look like bargain-basement buys.
Nvidia, cheap?
Six of the seven are on forward price-to-earnings (P/E) ratios that range from 25 (Alphabet) to 50 (Nvidia). And then we have Tesla’s P/E up at 201. Nvidia might have a market capitalisation of a whopping $3.6trn. But on a per-share basis, Tesla’s valuation is four times as high.
Admittedly, forecasts for earnings growth suggest that ratio of 201 should come down to 113 by 2026. But that’s still high compared to the others.
Consensus price targets for Tesla right now range from a low of $125 to a high of $528 (omitting the $2,600 target that Cathie Wood of Ark Invest put on the stock last year)
So, brokers think Tesla could fall 70%, or gain 26%, from the price at the time of writing. Know what I think? I think it means these clever analysts haven’t really got a clue. And to be honest, neither have I. But I do know Tesla has already fallen 14% from last month’s high.
Tesla bull
I’m bullish about the long-term future for Tesla. I’m just unsure about the current valuation. Investors need to be able to handle short-term swings, perhaps even some big ones. But at my age, I don’t have what it takes to grit my teeth and buy something when I think it looks toppy.
Still, I could change my mind and buy some if it really does crash in 2025. In fact, I think I might find it hard not to.
