The global markets woke up and expanded after enduring several months of price action within a very tight range. Investors calmed an unnecessary fear as the US presidential poll finally came to an end with much excitement, and surprise to many, exhibited that Tesla’s stocks shot elitist towards the results. As you are likely to buy the shares after sale closure and want to know when is the right time to invest in the shares of Tesla. Well, this varies with the strategies or the way one views investments.
Picture this for just a moment. Are you in a room filled with electric monitors, each showing the current positions’ changes every second, grinning as the colors red and green shift on the screen? In the absence of that scenario, it is not very intelligent to try and track Tesla stock at this moment. The stock market is very enticing most of the time and the investor is bound to buy whenever there is a sharp increase in prices but profit making investments are those priced on purchase where the price is low.
Consider that most individual investors already possess some degree of Tesla exposure, thanks to actively managed equity mutual funds or due to the S&P 500, the Nasdaq Composite, or the Nasdaq-100. Given its valuation of over $920 billion, Tesla is heavy in these indices. Therefore, even without buying shares of Tesla itself, if you hold one of these index funds that includes Tesla, chances are you are already profiting from the corporation’s business.
But let’s say you’re a more active investor who enjoys picking individual stocks. Is Tesla a smart choice at current levels? Industry analysts who spend a lot of time evaluating Tesla are divided. Out of the 52 analysts surveyed by S&P Global Market Intelligence, 12 rated it a “Strong Buy,” six recommended “Buy,” 19 suggested holding the stock, while four analysts labeled it as a “Sell” and seven rated it a “Strong Sell.” Altogether, the consensus recommendation stands at “Hold.”
Analysts’ average price target for Tesla sits around $222.96, implying a potential decline of over 20% from its current price. This cautious view largely stems from the stock’s high valuation, which has always been a controversial point for Tesla. Tesla is trading at around 115 times its projected earnings per share, which is steep by any measure. This premium makes Tesla appear expensive, a fact that has fueled skepticism from some investors. Yet, Tesla’s high valuation hasn’t deterred its strong market presence in the past, even though the stock is quite volatile. Tesla has a five-year beta of 2.3, indicating that it swings more sharply than the broader market. In fact, at one point, Tesla experienced a maximum drawdown of 73%, showing how risky it can be to hold this stock through turbulent times.
Volatility is generally viewed as a measure of risk because it raises the likelihood of investors making the mistake of buying at a high price and selling at a low price, owing to the swift nature of many markets. Nonetheless, long-term, Tesla has managed to provide significant returns. Although it has lagged behind shareholder returns of the S&P 500 for one and three years, it has bested them over a five-year horizon by a significant margin, generating approximately 50 percentage points more in returns each year than the overall market. This is a perfect illustration of a high beta stock that has, over time, rewarded those who had the courage to endure the periodic pain of holding it.
Still, any investment prospectus will include cautions that performance in the past does not ensure any future returns. Just because Tesla was able to outperform the market once does not mean it will be able to do so again. The conditions of the markets are dynamic and it should be noted that Tesla’s share price is not only reflective of the company’s performance within the electric vehicle sector but the market also appreciates its potential.
If you were already optimistic regarding Tesla considering the pre-election polls, there’s no necessity to let that view go. However, unnecessarily hurrying to purchase additional shares after the stock has already made a steep climb may not be the best course of action, especially for those who are not professional investors. In many cases, especially with a stock like Tesla, effective investing may simply be a matter of waiting and controlling one’s impulses.
