Tesla (TSLA) stock is closing in on the $500 mark. The recent rally was sparked by a reported Waymo outage, which left many of the company’s autonomous vehicles stranded on the streets. This brought back attention to Elon Musk’s full self-driving and autonomy. With the stock struggling to break the $500 barrier in the last week’s trading, investors have started wondering whether it is a psychological resistance and therefore worth selling the stock in the short term.
The arguments for buying or selling the stock are both valid. Tesla’s valuation is so high that it almost doesn’t make any sense. Yet the company is developing technology that could significantly alter the way we pursue work and live our lives. It comes down to whether someone is investing in the short term or for the long run. The $500 level is behaving like a profit-taking level, so the bearish case remains strong. If one can ignore this short-term investor behavior, the same level could very well be a stepping stone to a multi-trillion-dollar valuation.
Tesla is mainly known for its electric vehicles and an outspoken and controversial CEO in the form of Elon Musk. However, the company does much more, including in AI, robotics, and energy generation and storage. It is headquartered in Austin, Texas.
Tesla’s 19% year-to-date (YTD) returns have barely outperformed the S&P 500 Index’s ($SPX) 17.58% returns this year. Considering how important AI and robotics have become, one can expect the stock to continue gaining as more previously deemed impossible achievements become a reality thanks to its increasing investments in those fields.
TSLA stock trades at an extreme premium when we consider most of the conventional valuation metrics. After gaining 15% in just a month, this valuation has stretched further. Even when compared to its own five-year history, the stock is overvalued. For instance, its forward P/E of 377.87x is 1.5 times higher than its five-year average forward P/E of 148.54x. The forward EV/EBIT ratio is over 3 times the historic average of 115.69x.
The stock is clearly overvalued. But how do we price in Elon Musk’s statement that people soon may not even need to work because of humanoid robots? How do we cater to Elon Musk’s plan of making car ownership redundant, because one could just call a robotaxi from an app without having to worry about owning a car? The answer to these questions is not simple and depends heavily on how seriously you take Musk’s word.
