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As of 8/8/2013, the stock price of TSLA is $155. The
performance has been amazing 350% YTD. It is a stock rocketing higher and higher. If
you’re one of those lucky investors, protect your profit with stop orders.
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Is TSLA a good investment?
From the fundamental metrics, it
is not. The expected P/E is 150 and ROE is -360%. I seldom invest on stocks
with P/E over 40. However, the outlook of the company is very rosy and the
rising stock price indicates it could revolutionize the auto industry. It is
possible, but do you want to bet on it?
My preference is “Buy low and
sell high” as opposed to the current stock holders’ “Buy high and sell higher”.
Common mistakes of retail investors:
1. Investing
in a company is different from investing in a company’s products. Many Tesla
owners own the company’s stock.
2. Potential
appreciation of a stock has nothing to do with its past performance. Will have
another 300% return? Most likely, not. If the chance to decrease by $100 the
same chance to increase by $50, I do not buy.
3. When
the trend (all three simple moving averages in finviz.com indicates the trend
is up), selling short is against you even if you have good argument. Do not
swim against the tide especially in short term trade.
4. Your
profession (or expertise) could bring you bias in making investment decisions
in a company related to your expertise. I had many high tech friends betting on
internet stocks as they ‘knew’ better.
It is similar to your origin of nationality. When you were
born in China, it does not mean you’re an expert in Chinese stocks.
The Business Model
Building super charge stations
for the current owners to use free after a small initiation fee is a reversed
business model of giving razors free but making money on the blade. The latter
proves it works, but there are not too many beneficial precedents for the
former model.
Tesla, the car
Tesla is an electric car. The
current model is about $80,000 (not a typo) and the new model will be about
half that. It still has similar problems as the Volt except with one simple
drive train. The problems are:
1. The
service stations are built for free charging after an initial fee. Are they
really free? It will be great for the
owners if the company will not be bankrupted from its shaky financial state.
Same for sending mechanics to your house to fix your car. I hope they will
prosper as I cheer them from my cheap seat.
2. The
charging range for the average owner is far worse than the range under ideal
conditions and it will never be close to the range of cars using gas. Is the
extra cost for larger battery worth it to an average driver?
3. The
other problem is some states do not (or will not) allow selling a car there
without a dealership. It is costly to build a dealership network.
4. My
estimate is $10,000 rebate per car sold by Tesla from the government. Will the
government subsidize them forever? It is not a big deal now as the number of
cars they are selling is still small.
5. It
will appeal to folks driving a lot of miles in a year and/or when the gas price
surges. I drive about 8,000 miles a year and it will never pay back for the
extra cost ($80,000 vs. $23,000 for my Honda CR-V). Hope the $40,000 Tesla
would make a big difference.
6. Even
if the company is making easy money in selling the carbon credit, it will
still have big losses in the coming years.
The link is http://en.wikipedia.org/wiki/Carbon_credit.
Musk
Musk is very brilliant in pumping
up the stock. He will sell it without the restrictions in the loan after he
paid it back to DOE. The last owners of this stock could be the biggest losers
if it heads south. I could be wrong in the timing but not wrong in the fundamentals
of the company.
I sincerely wish he and his
company will be successful and I were wrong. Only time can tell. For my own
money, I prefer to buy low and sell high. It is just me. If you want to buy
high and sell higher, you should protect your investment with stop order. Also,
adjust the stop when it appreciates.
