For the past 20 years, there was non-stop talk about Amazon’s valuation. Very few people were interested in buying the stock because the company didn’t make money and it was hard to justify its earnings multiple. Now, more people are warming up to the stock because they are showing strong earnings (although they’ve been cash flow positive since 2002) and many people understand the company because they use Amazon religiously.
My point to this story is often times we don’t understand why a stock is trading at such high valuations until many years later. For example, in 2003 Apple was trading at 98x earnings before eventually releasing two products that would revolutionize our lives. I bring this up now because there is non-stop talk about Tesla’s valuation. My feeling is there is something going on now (similar to Amazon years ago) that we won’t understand for another 10-20 years. In other words, I accept that the market is smarter than me and I’m not going to argue with it.
Everyone knows by now that Tesla is not just a car company. They are involved in batteries, software, autonomous vehicles, energy storage, energy generation and many other technologies. So the possibilities are endless as to what could become of this company many years from now. My feeling is that in 10-20 years, electric cars will follow a similar path to cell phones. In other words, gas cars will still exist but almost everyone will be using electric cars (just as land lines still exist but almost everyone uses a cell phone). It’s possible that Tesla will not only be the leader in electric cars but also have patents and receive royalties on the electric cars made by other manufacturers.
As I have been discussing for the past month, Tesla’s stock chart is just breaking out of 2 ½ year technical base. Many technicians believe the stock has plenty of room to run over the long-term. Full disclosure, I’ve been in the stock for a while now for clients and this is a longer-term position for me. So why is Tesla’s stock so strong? My feeling is it’s something that we won’t comprehend for many years to come.
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