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Should You Buy Tesla After Its 365.9% Rise?

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

If you do both well, it helps you earn higher than average investment returns and build wealth.

Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.

To help you figure out whether you should buy or now, today I answer – Should You buy Tesla After its 365.9% Rise?


Normally in these articles I talk about other things like profitability, cash flow, the affects coronavirus is having on a company’s financials, and other things.

But frankly none of those matter with Tesla (TSLA) due to its huge valuation.

As of this writing Tesla is a $$755.1 billion market cap electric vehicle company.

This market cap makes Tesla the 5th largest public company in the world.

But just how overvalued is Tesla?

Its P/E is 1,247.1.

Its P/CF is 145.5.

And its forward P/E is 192.3.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Tesla crushes these.

Another way to put this is that in its entire lifetime Tesla’s sold an estimated 1.1 million vehicles worldwide from 2012 to the 3rd quarter of 2020.

When comparing this number to the market cap it shows the market is currently valuing Tesla at $686,645 per vehicle it sells.

The highest priced Tesla is around $100,000 at full price… And this doesn’t even exclude costs and expenses through labor, parts, and development to manufacture the car.

And these costs bring Tesla’s margins barely above 0% when it comes to operating profit and free cash flow production…  In the trailing twelve months period its net profit margin is negative 0.6%.

In other words, the market is currently valuing Tesla as the 5th most valuable company in the world and its barely profitable.

I love Tesla vehicles and plan to make it my next vehicle purchase after test driving one earlier this year.

I love Tesla’s mission.

I deeply admire Elon Musk and personally think he’s one of the most important people living on Earth today because of everything he’s building in his various companies.

And I hope he continues pushing, innovating, and succeeding toward his goals of going to Mars and making Earth a better place to live.

But there’s zero chance I’m buying Tesla stock any time soon due to its otherworldly valuation.

Don’t believe me… Here’s what Elon Musk himself – the CEO of Tesla – recently said in an internal Tesla email that leaked to the press.

When looking at our actual profitability, it is very low at around 1% for the past year. Investors are giving us a lot of credit for future profits, but if, at any point, they conclude that’s not going to happen, our stock will immediately get crushed like a soufflé under a sledgehammer!

Why did he say this?

Because the valuation for Tesla is absurdly high…  And it continues to get even worse.

The recent buying spree in Tesla stock is so crazy that a few weeks ago it gained $60 billion in market cap in one day.

In other words, in one day Tesla stock grew in value by the same amount both Nissan at $20.2 billion and Ford at $41 billion are worth combined.

Even more worrisome about Tesla, famed “Big Short” investor Michael Burry who predicted the Housing Bubble years before it popped and led to the financial crisis in 2007, said this about Tesla recently… 

‘Big Short’ investor Michael Burry predicts Tesla stock will collapse like the housing bubble…

He went on to say… “Well, my last Big Short got bigger and bigger and BIGGER too, Enjoy it while it lasts.”

These quotes are from a recent Business Insider article.

I want as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point in a company and the world.

If you’re buying Tesla stock today there’s zero room for error due to its huge valuation.

And this makes it a risky investment today even though its likely to continue transforming the world.

For these reasons I recommend you stay far away from Tesla.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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