There is rarely a dull moment when it comes to Tesla (NASDAQ: TSLA) stock. The carmaker’s share price has made some big moves over the years, both up and down.
So far this year, it has moved down 18%. That does not sound promising.
But interestingly, Tesla stock has jumped by 22% since the last week of July.
To do that well in a matter of weeks for a company of Tesla’s size – its current market capitalisation is $1.2trn – is no mean feat.
As the share price chart shows though, the stock’s recent upward movement still puts it some way below where it was before an investor sell-off in July. It had been trading north of $400 then.
Might it get back there this year – and should I pick up some now for my portfolio?
Focused on the future
Of course, looking at a chart of where a share price has been does not necessarily mean it will go there again, just like looking at a photo of yourself from last year will not take away that newly noticed wrinkle!
However, it is possible for Tesla to hit $400 this year I reckon.
$400 is 11% above the current share price. That is not a negligible amount for a share to increase in under four months, but it is certainly possible, as Tesla’s 22% increase over the past seven weeks or so demonstrates.
The stock can often react strongly to news, such as a sales jump or profit slump. So if it cheers investors with a strong quarterly earnings release, that could help boost the price. The next one is due in October.
One reason the stock has drifted at points this year is that investors are concerned that profitability is declining in the core car business, while the move to commercialisation of self-driving taxis is slow. If Tesla has strongly positive news on either of those points next month, I think that alone could see the stock hit $400.
This still looks badly overpriced to me
Is that because such news could make Tesla worth $400? I do not think so. But then, I do not think it is worth its current price either!
At 335 times earnings (yes, 335), I see Tesla stock as ridiculously overpriced. Accordingly, I have no plans to buy.
Clearly though, some investors (including very successful ones) do think the stock is worth that much – or more.
Part of their rationale is that Tesla’s growth opportunities remain huge in self-driving taxis, robotics and AI.
I think there is some basis for such optimism, which could potentially push the share upwards. In its most recently reported quarter, for example, Tesla announced a 50% year-on-year jump in “services and other revenues”.
With its large and growing installed user base, Tesla has a sizeable opportunity to sell services such as self-driving software. That could offer attractive profit margins compared to flogging the cars themselves.
But there are loads of risks that could stop this growth story happening, such as strong competition from rivals like BYD or regulatory concerns about the safety of self-driving.
Whether it hits $400 again this year or not, I will not be along for the ride, as there are other growth opportunities I think look much more attractively priced than Tesla stock.
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Christopher Ruane does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
