This one chart...Tesla shooting for the stars
It's tough to make predictions, especially about the future. - Yogi Berra
Who would have that all those Tesla bulls would be right. What is happening in markets right now is absolutely mind boggling - especially when it comes to the likes of Facebook, Amazon, Netflix, Google, Tesla - it really is a sign of the times.
Tesla, a company that was plagued with problems 15 years ago when it started, has now become the world's most valuable automaker. Tesla's market capitalisation is over US$285bn. In fact, Tesla's market cap is greater than that of Toyota - US$200bn. Tesla is yet to be included in the S&P 500, and if it was, it would make up over 1% of the index. It's America's 15th largest company by market cap. It's bigger than Intel, Disney, Bank of America, Coca-Cola, Nike, McDonald's, just to name a few.
Looking at valuation metrics, Tesla is trading at a 300x Price/Earnings, 100x Price/Cash Flow, and almost 29x Price/Book. To give you some idea about the broader market, the S&P 500 is trading a 19x Price/Earnings. Even during one of the fastest and steepest stock market declines (COVID-19), Tesla's stock is up 268% year to date. But then again, the market does not seem to care about metrics right now.
As Tesla approaches index inclusion, we're seeing billions of dollars front running forced buying by the trillions of dollars in index tracking funds. The interesting thing about all of this is that the bond market disagrees with the index inclusion game, as it prices it's bonds 400 basis points over that of similar market capitalised companies.
One thing we've learnt over the last decade, is that betting against stocks that are going up is a game you shouldn't be playing. The market can remain irrational for longer than you can remain solvent. Maybe this is the one company that the bond market is wrong about and the stock market is right about? Time will tell.