How has Tesla (NASDAQ: TSLA) been doing? Is Tesla stock worth considering?
Those are two different questions – and involve two different ways of looking at things.
How a share has performed depends on the timeframe concerned. In the short term, Tesla stock has been an awful performer. The past month alone has seen it fall 24%.
Over the long term, though, Tesla has been an impressive stock market performer.
It is up 38% in five years and an incredible 24,981% since it listed on the stock market in 2010.
Such figures are backwards-looking. That is why the question of how a share has done and whether it is worth considering are different.
How a share has done is a backward-looking matter of fact. Whether it is worth considering involves a forward-looking matter of judgement.
Tempting though it may be, it is very important as an investor not to confuse those things.
Looking to the future
The recent share price fall means that someone who spent £20k on Tesla stock a month ago is already sitting on a paper loss of £4,800. The stake would now be worth £15,200.
That is a painful loss in such a short time. There is not even the consolation of a dividend, as Tesla does not pay any.
But looking at the Tesla stock price today and the company’s future prospects, might it now be worth considering?
Tesla’s ultimate business model is a matter for debate
What is an appropriate valuation for Tesla is a debate that has raged for years already.
The dramatic drop in price over the past month is further evidence that there is still no settled view among investors on this point.
A key reason behind the tumbling stock price is the concern that increasing competition from rivals and declining subsidies is eating into the profitability of Tesla’s car business.
While the second quarter saw automotive revenues grow at a storming 23% year on year, the company’s operating margin (across the whole business, not just the automotive division) sank from 4.1% in the prior year period to 1.4% this time around.
That might sound bad. If you see Tesla as a car company, it is concerning that although volumes are moving up, earnings are moving down, squeezing profit margins.
But is Tesla in the business of selling cars? Not everyone thinks so…
Lots of opportunities left to explore
An alternative view is that Tesla’s vehicles are basically just a way to sign up customers that it can then sell services to.
That interpretation is supported by a 50% year on year growth in the company’s ‘services and other’ revenue.
The approach could help lay the foundation for Tesla’s extensive expansion plans beyond selling vehicles, including AI, robotics, and self-driving taxis, as well as existing business lines such as power storage.
If that view turns out to be correct and Tesla can use its large installed customer base, reams of data, and knowledge to grow its business into those areas successfully, today’s stock price may come to look cheap.
But there is a huge amount still to prove and no guarantee that will happen.
So I am ignoring Tesla for now and hunting other stocks to buy that I think offer clearer future prospects and more attractive current valuations.
Should you invest £5,000 in Tesla right now?
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Christopher Ruane does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
