It’s fair to say Tesla (NASDAQ: TSLA) shares have done very well for investors recently. Over the last three months, Tesla’s share price has risen about 85%. Over the last year, it has surged more than 500%.
As a result of this share price rise, Tesla now has a huge market capitalisation of $275bn. To put that in perspective, that’s larger than BP, GlaxoSmithKline, Lloyds Bank, BT Group, and Tesco combined. Clearly, investors are expecting big things from the electric vehicle manufacturer.
Should UK investors buy TSLA shares now? Here’s my view.
Tesla: An exciting company
There’s a lot to like about Tesla as a company.
For starters, the company manufactures amazing electric vehicles. Not only do Tesla’s cars feature state-of-the-art technology and batteries, they also have amazing speed and performance. In addition, they’re extremely sleek. It’s not hard to see why Tesla has a growing fan base.
Tesla is also a major player in the autonomous driving space. And this technology may not be far off. Just recently, Founder Elon Musk said that ‘level five’ autonomy – the holy grail of autonomous driving – was “very close”.
Furthermore, Tesla’s energy segment looks to have considerable growth potential. Currently, this side of the business generates just a small proportion of revenues. Yet Musk has big aspirations here. “I think long term, Tesla Energy will be roughly the same size as Tesla Automotive“. he said recently.
Overall, Tesla is an exciting company. In a world that is becoming increasingly focused on sustainability, I think Tesla looks well placed for growth.
Is now the time to buy TSLA shares?
That said, from an investment point of view, I have my concerns about Tesla.
The first thing that concerns me is the exponential run Tesla’s share price has gone on this year. Tesla currently looks a bit like Bitcoin in late 2017 (and we all know what happened there). Buying any share after a run like that is always a risky move.
Source: Motley Fool
Hedge funds expect TSLA to fall
Another thing that concerns me about Tesla is that a large number of investors continue to ‘short’ the stock (bet against it). Currently, short interest is just under 9%. Granted, that’s lower than it has been recently but it’s still high in general. By contrast, Apple has short interest of about 0.8%. This short interest means that plenty of investors expect Tesla’s share price to fall.
No margin of safety
Finally, Tesla’s valuation seems stretched, to my mind.
For FY2020, the consensus earnings per share (EPS) forecast is $1.65. For FY2021, it’s $8.19. This means that Tesla shares currently trade on a forward price-to-earnings ratio of about 900, falling to about 180 using next year’s forecast. That seems high to me. It doesn’t leave any margin of safety.
Some investors argue that Tesla shouldn’t be valued with P/E ratios and that tech stocks should be valued differently.
My response? ‘This time is different’ are the four most dangerous words in investment management.
How I’d play Tesla shares
Personally, I’m going to keep Tesla shares on my watchlist for now.
I think the company certainly has growth potential. However, I’m not going to chase the stock.
If the share price falls back, I may consider taking a position. But right now, I think there are better tech stocks to buy.
The post Tesla is now bigger than BP, GSK, and Lloyds Bank combined. Should UK investors buy TSLA shares today? appeared first on The Motley Fool UK.
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Edward Sheldon owns shares in Apple, GlaxoSmithKline, and Lloyds Bank. The Motley Fool UK owns shares of and has recommended Apple and Tesla. The Motley Fool UK has recommended GlaxoSmithKline, Lloyds Banking Group, and Tesco. 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.
Motley Fool UK 2020