Tesla (NASDAQ: TSLA): what a share! Whether you think it is one of the greatest growth stories of recent decades, or a wildly overpriced carmaker, the twists and turns of the Tesla stock price have been nothing if not dramatic!
At the right price, I would be happy to own the share. Tesla has a strong brand, large installed customer base and a proven ability to innovate at speed.
But before we look to the future and I explain whether I am ready to buy some Tesla stock at its current price, I will take a look in the rearview mirror.
A wild ride – but massively lucrative
Tesla does not pay dividends. So someone investing £150 in Tesla stock five years ago would have earned nothing along the way.
That may not bother them though, given how well the stock has done during that period. Specifically, it has increased in value by 544%. So £150 invested five years back would now be worth £966.
Is that enough to buy a superyacht or start using a private jet? No. But for a £150 outlay, I think it is an outstanding return. If I had a spare £150 and put it into some shares, only to find that they were edging towards a four-figure valuation after five years, I would be thrilled.
By contrast, during that period, the S&P 500 index has moved up 94%. That is more than twice as good as the FTSE 100. But, compared to Tesla stock, it pales in comparison.
A common investing mistake
So far, so (very) good. But one error many investors make (including myself on multiple occasions, I confess) is looking back and hoping it might give us some sort of guide to what will happen in future.
History may repeat itself – or things could go very differently down the road. Past performance is not necessarily an indication of what will happen. That is certainly true for Tesla stock, which has been highly volatile lately. It has doubled in value over the past year, but is down by a quarter since December.
I’m not buying, for now
The reasons for the stock’s rise in the past five years do not necessarily apply now, in my view. After years of rapid growth, last year saw Tesla’s sales volumes fall. That decline was slight, but accelerated in the first quarter of this year.
The market for electric vehicles (EVs) has grown over the past few years, but it has become much more competitive. That has brought the risk of lower profit margins.
Tesla has a host of initiatives that could help it boost growth, from driverless taxis to robotics. But, apart from its fast-growing and sizeable power storage business, those ideas have yet to prove their commercial value at scale.
Set against that, the Tesla stock price-to-earnings ratio of 197 looks ludicrously high to me. It is far too expensive for my tastes, so I will not be investing in Tesla for now.
