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Why I Don’t Invest in Tesla (Investor Warning)
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This is why I don't invest in Tesla stock and why I think it's overpriced. This is how to valuate a stock 101.
Elon Musk didn’t actually create Tesla. In fact, he wasn’t even the guy who came up with the name for the company. Tesla was originally created by Martin Eberhard and Marc Tarpening in 2003. Elon Musk didn’t actually join Tesla until 2004. The reason he became the face of Tesla even though he wasn’t one of the original founders, is because he was the OG, in the series A funding to get Telsa up and running. He put in $6.35 million dollars of his own money, and took a pretty substantial stock of Tesla along with that investment. Eventually through his leadership, vision, and design, he was able to make Tesla the most valuable car company in the world.
Since then, Tesla has grown to a GIGANTIC valuation. But regardless how great the hype is, you might want to think twice about buying the stock. The question I want to answer is simple, is the stock worth what it’s trading at right now? I don’t think it is, and let me tell you why.
A picture is worth a THOUSAND words. The reason I stay away from Tesla right can be explained with this stock price graph. You know what else looked like it before it lost over 50% of it’s value? Digital currency. The term is called “going parabolic”. It means it’s going straight up which is almost always a sign that we’re about to or that we hit the top. Here’s a really simple way of looking at a stock to see whether it’s a good price or not.
It’s known as the price to earnings ratio. What that means is the price that people are willing to pay for a stock in comparison to how much money makes for every dollar in a given year. You can find this P/E ratio number in your brokerage, like Robinhood or WeBull or Fidelity, Charles Schwabb - or whichever one you use. So for example, if a company has a P/E ratio of 25, that means people are willing to pay $25, for every $1 of profit that the company makes. So a high P/E ratio means that the stock is probably overvalued and people have high expectations that it will make a lot of money in the future, and a low P/E ratio, means the stock could be undervalued because people think the company ISN’T going to make much money in the future.
Historically speaking, the average P/E ratio of the stock market has been around 15 or so. Meaning, for every $1 a company makes, people have typically paid around $15 for each stock. So if a company’s EPS or earnings per share is $4, and the P/E ratio is 15, that stock would be worth around $60. Most investors look for a stock with a P/E ratio of below 20 when considering which stock to buy. It’s a really quick and easy way to narrow down your options when looking for which stocks to buy.
However, P/E ratios don’t accurately describe everything we’re looking at because it doesn’t take everything into account. A P/E ratio leaves out the GROWTH rate of a company which is SUPER important when determining the stock price. If you only look at a P/E ratio below 20 you might mistakenly buy a company that isn't growing. A good “value” metric when looking at a stock is a PEG ratio of 1 or preferably lower than 1. Anything more than 1, is getting farther and farther away from “value”. In Tesla’s case, its PEG ratio, is actually above 9 - very expensive.
When price shopping for a stock you want to buy, try to compare two stocks from two same sector to get a better understanding. Don’t compare Apple to Verizon, they’re different sectors and industries. Try to compare Apple to something like Microsoft maybe, and Verizon to something like AT&T. If we compare the PEG ratio of Tesla which is 9.07 to a competitor in the same industry, Ford for example, which has a 1.72 PEG ratio - that is a huge difference.
Renters losing housing. And most importantly, Papa Powell from the Federal Reserve printing so much money, that the Fed might as well declare an IPO.
For now, Tesla is overvalued, all things considering in relation to competitors, but the future for Tesla, is still very bright.
*Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.
Elon Musk didn’t actually create Tesla. In fact, he wasn’t even the guy who came up with the name for the company. Tesla was originally created by Martin Eberhard and Marc Tarpening in 2003. Elon Musk didn’t actually join Tesla until 2004. The reason he became the face of Tesla even though he wasn’t one of the original founders, is because he was the OG, in the series A funding to get Telsa up and running. He put in $6.35 million dollars of his own money, and took a pretty substantial stock of Tesla along with that investment. Eventually through his leadership, vision, and design, he was able to make Tesla the most valuable car company in the world.
Since then, Tesla has grown to a GIGANTIC valuation. But regardless how great the hype is, you might want to think twice about buying the stock. The question I want to answer is simple, is the stock worth what it’s trading at right now? I don’t think it is, and let me tell you why.
A picture is worth a THOUSAND words. The reason I stay away from Tesla right can be explained with this stock price graph. You know what else looked like it before it lost over 50% of it’s value? Digital currency. The term is called “going parabolic”. It means it’s going straight up which is almost always a sign that we’re about to or that we hit the top. Here’s a really simple way of looking at a stock to see whether it’s a good price or not.
It’s known as the price to earnings ratio. What that means is the price that people are willing to pay for a stock in comparison to how much money makes for every dollar in a given year. You can find this P/E ratio number in your brokerage, like Robinhood or WeBull or Fidelity, Charles Schwabb - or whichever one you use. So for example, if a company has a P/E ratio of 25, that means people are willing to pay $25, for every $1 of profit that the company makes. So a high P/E ratio means that the stock is probably overvalued and people have high expectations that it will make a lot of money in the future, and a low P/E ratio, means the stock could be undervalued because people think the company ISN’T going to make much money in the future.
Historically speaking, the average P/E ratio of the stock market has been around 15 or so. Meaning, for every $1 a company makes, people have typically paid around $15 for each stock. So if a company’s EPS or earnings per share is $4, and the P/E ratio is 15, that stock would be worth around $60. Most investors look for a stock with a P/E ratio of below 20 when considering which stock to buy. It’s a really quick and easy way to narrow down your options when looking for which stocks to buy.
However, P/E ratios don’t accurately describe everything we’re looking at because it doesn’t take everything into account. A P/E ratio leaves out the GROWTH rate of a company which is SUPER important when determining the stock price. If you only look at a P/E ratio below 20 you might mistakenly buy a company that isn't growing. A good “value” metric when looking at a stock is a PEG ratio of 1 or preferably lower than 1. Anything more than 1, is getting farther and farther away from “value”. In Tesla’s case, its PEG ratio, is actually above 9 - very expensive.
When price shopping for a stock you want to buy, try to compare two stocks from two same sector to get a better understanding. Don’t compare Apple to Verizon, they’re different sectors and industries. Try to compare Apple to something like Microsoft maybe, and Verizon to something like AT&T. If we compare the PEG ratio of Tesla which is 9.07 to a competitor in the same industry, Ford for example, which has a 1.72 PEG ratio - that is a huge difference.
Renters losing housing. And most importantly, Papa Powell from the Federal Reserve printing so much money, that the Fed might as well declare an IPO.
For now, Tesla is overvalued, all things considering in relation to competitors, but the future for Tesla, is still very bright.
*Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.
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