TSLA stock is heading towards $ 1,000 and a market cap of $ 1,000 billion
Despite the recent market correction, You’re here (NASDAQ:TSLA) caught fire. It must be driving its skeptics crazy that TSLA stocks perform so well when the market is under pressure.
The S&P 500 fell 6.1% from its September 2 high to its recent low. Tesla shares did not flinch when the market first rocked, hitting a multi-month high on September 8.
However, stocks corrected 7.3% from that figure, although at the close the correction hit a low of just 4.5%. This is important, because it shows that – at least during the current correction – Tesla’s decline was roughly in line with that of the S&P 500.
On the positive side, that’s another story. TSLA action is up 17% from September lows and is up nearly 12% from its September 2 highs, the day the S&P 500 hit its high.
I think this relative strength can continue.
Tesla is the best stock of electric vehicles in town
No one does it better than Tesla when it comes to electric vehicles. The stock has always traded at a high valuation and in the early years it was the subject of controversy.
More recently however, the company has produced strong earnings reports (yes, I know, with EV credits increasing the bottom line), while generating solid growth in shipments. It is expanding in the United States with its plant in Texas, as well as in Europe with its plant in Germany. Chinese production is doing well, while Tesla is working to boost its vehicle portfolio.
While the EV boom and the SPAC EV boom have been more of a flash in the pan – with many of these stocks exploding higher and falling hard – Tesla has been a rare beacon of strength.
Other actions of relative strength include General Motors (NYSE:DG) and Ford (NYSE:F).
In so many words, Tesla has taken the world of electric vehicles to the next level and now everyone is catching up.
However, it is still difficult to develop the current valuation of TSLA stock. With a market cap of $ 825 billion, many people only think of Tesla as a car maker. As such, they will gladly point out that Tesla’s market cap is above the the next seven biggest automakers combined.
It’s an exhilarating assessment, but what a lot of people don’t realize is that Tesla does more than just build electric vehicles. It also has a full power unit. Does that mean it should trade at a market cap of $ 1,000 billion?
Not necessarily, but that takes away at least part of the argument that Tesla is just producing vehicles.
Distribution of TSLA stock
For the year, analysts expect Tesla to generate just over $ 50 billion in sales. If achieved, it will represent a growth of about 60% over last year. By 2022, estimates point to around $ 70 billion in revenue, then $ 82.7 billion in sales in 2023.
My friends, if Tesla starts generating over $ 100 billion in revenue, it will be very hard to ignore.
Profits are growing at an impressive rate – estimates point to growth of 144% this year and 35% next year – but that doesn’t mean Tesla’s P / E ratio is rational.
The first thing to keep in mind is that this is a cult stock. Investors and traders flock to these types of names and it becomes an emotional battleground between the bulls and the bears. Cult stocks almost always have a high valuation.
Second, keep in mind that CEO Elon Musk owns more than 227 million shares. That’s roughly double the top 10 holdings in mutual funds combined, and more than the top eight hedge funds combined.
It’s also over 20% of the company’s ~ 1 billion outstanding shares. In a way, it’s like shrinking the float, making things tighter and more susceptible to upward compressions.
I like to mix techniques and fundamentals, and in most cases, in that order.
As for the charts, I can see the uptrend. It has been that way for quite some time and we hammer Tesla in the Top Stock Trades column.
contrary to Nio (NYSE:NIO) and many other electric vehicle games, Tesla’s trend has been on the rise. Justifying a market capitalization of $ 1,000 billion is not easy. But that’s the valuation we get if the stock hits around $ 1,000, which is possible.
If you look at the chart above, you’ll notice that Tesla hit a low in mid-May, but didn’t hit new lows like most growth stocks. The stock then recovered the 200-day moving average and moved up along that mark.
Along the way, notice how Tesla found resistance, consolidated, and then erupted. More recently we have a breakout over $ 800 and now a move above the 78.6% retracement. We have a “blue sky” in front of us, with $ 880 at stake, followed by $ 900.
If TSLA stock can reach $ 900, it’s very possible that $ 1,000 will act like a magnet. No part of me would be surprised to see this level hit in the next few quarters.
TSLA stock has now been up for eight straight weeks and momentum has been robust. For now, withdrawals are buying opportunities, as Tesla could return to highs and potentially $ 1,000.
As long as it continues to produce strong growth and strong delivery results, what catalyst will the bears need to lean on? If it’s evaluation, well, that argument has grown tired over the years.
At the time of publication, Bret Kenwell had (directly or indirectly) no position on the titles mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Bret Kenwell is the director and author of Futures Blue Chips and is on Twitter @BretKenwell.