I just saw a post that said Tesla stock is only worth 1/5 as much as it’s valued as. It doesn’t make sense to me.
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Tesla used to be the only real EV game on the market, but now, almost every manufacturer is making (or starting to make) EV’s of quality, and these competitors have a lot more experience than Tesla at making autos. Telsa’s seem to have more problems than any other car right now.
I am not considering a Tesla, where as 2 years ago, it was strongly considered. Elon’s looney-tunes behavior isn’t helping. I don’t think that any reasonable person would have confidence in buying a Tesla right now.
You usually buy stocks becauae they pay you dividends. Tesla doesn’t. It’s purchased by elon-lovers and speculators
Imagine a company makes $10 a year and has 10 shares that cost $1 each.
In this case, it would take you one year to make up your investment.
That’s your P/E ratio. Profit is $10, company is worth $10, so the ratio is 1.
What’s a fair price based on earnings? Well the S&P500 average (500 largest USA companies) is around 24. So if you didn’t reinvest, it would take about 24 years to make your money back assuming the price didn’t change.
Tesla has a PE of 74. So it’s really expensive compared to its peers. This might make sense if Tesla is expected to grow its profits, but that’s REALLY unlikely. The only way they’ve been profitable so far is on the back of significant subsidies and they are facing huge headwinds. So banking on new higher profits is a big gamble that’s unlikely to pay off.
That’s what they mean when they say it’s expensive. The cost relative to what their profit is is really high compared to similar companies and its a risky bet to assume they will make up the difference.
“Shares” are pieces of the company divided up and sold. If you have 1 share you own one tiny piece of the company.
Now what if you wanted to own the company? Just you, all to yourself? You would have to buy ALL of the shares in existence. It will cost you the share price multiplied by the total number of shares you have to buy.
So that’s how much the company cost to buy outright. Is it worth it? You might feel that price is too high. That is “overvalued.”
In reality you take assets, revenue, holdings, all sorts of stuff that have “value” and try to figure out if the actual monetary value of a company is reflected in the share price.
For what it’s worth, “overvalued” is extremely common in today’s market where supply and demand alone can make a share price much higher than it would be otherwise.
2018, stock is 50 billion and many say its overvalued.
Who knows, in 2030, when it’s 5 trillion or some stupid number, people will definitely be sure it’s overvalued.
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