Wednesday, December 23, 2020

Tesla is easily the most sensational financial story in 2020. Will it last?

Tesla is easily one of the hottest tech stock in 2020. 

Shares of electric vehicle maker Tesla are up nearly 700 per cent over the last year, a meteoric rise has turned it into the world's most highly-valued automaker.

Is it too late to grab some ? 

With markets running up from its March lows, many would agree that Tesla is one of the most sensational performer. 

Tesla is now larger than the next five largest global auto companies (Figure 1) combined with a mammoth price-to-earnings (P/E) ratio standing at 1,278, according to FactSet data.

Given its gigantic size, Tesla could probably be a big macro driver of the market going into 2021 but is the valuations justified and will it be sustainable?

Looking at the earnings over the last 12 months, the S&P 500 was 26.79 times

Put it simply, investors have been willing to pay $26.79 for every $1 of earnings on an average S&P 500 component while Tesla investors are willing to shell out roughly $1,300 for every $1 of earnings produced by Tesla over the past year.

Apple potential entry into the auto industry could make a bearish case for Tesla

Morgan Stanley analysts see Apple’s rich ecosystem (deep pockets, capital access, ability to attract and retain talent and a large user base) as a strong basis of becoming a formidable opponent to Tesla than other auto-makers.

Should investors continue to plough into Tesla?

Now let us have a look at technicals and price action of Tesla on December 17, 2020, it hit the top of the trend channel and accompanied by high volume, a sign that  it has completed its trend channel cycle.

A similar price action was seen on February 3, 2020 where Tesla price hit the top of the trend channel at $194 before a correction of more than 36% to $70 on March 18, 2020.

If the same price action plays out,  I expect  an impending correction like that of February beginning to unfold in the next 20 days


All posts and charts are for educational and illustration purposes only

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