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Tech Disruption Guru and ARK Investment Founder Cathie Wood Says Her Company Proposes New Price Target
Tesla
stock soon. No one knows exactly when, but when it will arrive it will be a big deal for Tesla fans.
The question for investors is what price is likely for Tesla (ticker: TSLA).
Wood recently told me Barron’s Jack Hough said the expected minimum return for a stock to be included in her portfolio is 15% per annum for five years. “That’s doubling in five years,” Wood said.
That’s what 15% per year produces for five years. There is a handy rule of thumb on Wall Street known as the ‘rule of 72’. The number 72 divided by the annual return gives investors the years it takes to double a stock. It’s an approximation, but a pretty good one. At 15%, the rule of 72 equation yields 4.8 years. It actually takes about 4.96 years for an investment to double at 15% per year. Still not bad.
Wood told Hough that Tesla stock will do “significantly more” than the 15% threshold in its most bearish case for Tesla stock at the current level. Exactly what means substantially better and what the current levels are is a mystery. An annual return of 20% per year would yield a total return of about 150% over five years. That’s significantly more than 100% earned earning 15% per year for five years.
As for the levels, Tesla’s stock has averaged about $ 650 for the past few days. That could mean Wood’s bear case is about $ 1,600 a share by 2026.
That leaves investors with base and bull cases to investigate. Tesla shares have returned about 70% annually on average for the past five years. A repeat of that would put the Tesla stock above $ 9,000 a share, making the Tesla stock worth about $ 9 trillion. That may be too aggressive.
Amazon.com
(AMZN) shares have returned about 40% annually on average for the past five years. If Tesla can make that return, the stock would be about $ 3,500 by 2026. That would make the Tesla stock worth about $ 3.5 trillion, which would be a factor of two more than all other auto stocks combined. Maybe it makes sense to cut that figure down to $ 3,000.
Right in the middle of the bear and bull cases is a good bet for the base case. That makes $ 2,300 per share. At $ 2,300 in 2026, Tesla’s stock would have returned about 28% per year on average.
Wood’s target price for Tesla stock in five years could easily be north of $ 2,000. In 2018, Wood made a now-legendary call that Tesla would fetch $ 4,000. That was 5 for 1 before the stock split. Her call was $ 800 per share, a level Tesla reached in late 2020.
Going from $ 800 to $ 2,000 plus may seem like a chore. How could things have gotten that much better less than three years after the initial $ 800 call? Well, Tesla has been making more money faster than expected, the cost of EV batteries has continued to fall, and more automakers have committed to an all-electric future.
EVs are doing better.
Wall Street’s highest Tesla target price belongs to Piper Alex Potter at $ 1,200 a share. Wall Street target prices are typically where analysts expect prices to rise in the next 12 months.
Tesla stock has had a bit of a speed bump lately. Shares are down about 15% so far this year, lagging behind the return of the
S&P 500
and
Dow Jones Industrial Average.
Business execution doesn’t seem to be the problem. Fears of inflation and higher interest rates have hit the stock prices of many high-growth stocks lately.
Tesla is a fast growing company. It expects to increase volume by an average of 50% per year in the near future.
Write to Al Root at [email protected]