Over the past year, Tesla (NASDAQ: TSLA) has put in a storming performance. The Tesla stock price has soared 72% in just 12 months.
That means that the carmarker’s shares have more than tripled over the past five years.
Could things go even higher from here?
An unusual company – and stock
I think the answer is yes, the share could potentially go higher from here.
Investors often talk about share price movements in terms of ‘fundamentals’ and ‘momentum’.
Fundamentals are things like a company’s sales revenues, profit margins, and debt levels.
Momentum is how the share price has been performing. Sometimes, momentum around a share can attract more investors to buy (or sell) it, continuing that trend and in turn attracting more buyers (or sellers). In that way, momentum can sometimes push a share price a long way.
Ultimately, though, I expect a company’s share price to be driven primarily by its fundamentals – even though that may take a long time to happen.
As its wild gyrations and price-to-earnings ratio of 300 suggest, Tesla stock has seen a lot of momentum. For a firm with a $1.4trn market capitalisation, I see it as an unusual amount of momentum.
However, Tesla is also an unusual company. It has grown very fast. Last year, barely a couple of decades after being founded, it reported over $98bn of revenues. It has proprietary technology and capabilities in building new markets.
I could see a $500 price
Taking a momentum-based approach, I could definitely imagine the Tesla stock price hitting $500 at some point over the coming year.
That would represent an increase of less than 12% from the current price. By the standards of Tesla’s share price volatility I mentioned above, I do not think that would be exceptional.
For it to happen, I think either there could be a continued upwards movement in the broader US market, or simply some positive news specific to Tesla.
After a weak first half, Tesla’s third-quarter performance included record vehicle deliveries and also a record deployment of energy storage products.
So, if its fourth-quarter performance is strong enough to inspire confidence in a sustained recovery across the second half, that could push the share price up.
I won’t be going anywhere close
But while I could see Tesla stock possibly hitting $500 in coming months, personally I will not be touching it with a barge pole anywhere close to its current level.
I reckon the company’s fundamentals do not justify that price (or anything like it) and the share has been pushed too far upwards by momentum.
Will that turn out to be short-sighted of me?
Tesla’s vehicle sales recovery could indicate that it is continuing to grow even in an increasingly competitive market for electric vehicles.
Meanwhile, there is clear potential for further growth in energy storage, while as yet unproven areas like self-driving taxis and robotics could yet be huge opportunities for Tesla. If that happens, the current Tesla stock price could well be justifiable from a long-term perspective – and so may a higher one.
But, basing the valuation on existing business prospects, I see Tesla as badly overvalued already.
