So much thought has gone into Tesla’s breathless rise to mind-boggling valuations in 2020. But the stratospheric rise of the Palo Alto, California-based company could also have a broader impact on overall markets, not just Tesla or the burgeoning electric vehicle market, notes a strategist from Deutsche Bank.
The equity rally for Tesla TSLA,
has defied conventional wisdom, especially when it comes to the carmaker’s rise against other companies that long produced cars on assembly lines before 2003, when Tesla was founded.
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Deutsche Bank’s Jim Reid tries to put the company’s movements into some perspective, noting the obvious fact that Tesla stood out this year: “It’s up + 704% and is now bigger than the next five largest global auto companies together. “
Its gigantic size has been debated ad nauseam, but Reid suggests that next year, especially as Tesla is included in the S&P 500 index SPX,
The fate of the market may ultimately be influenced by early financier and current CEO Elon Musk.
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“In a remarkable 2020, Tesla is arguably the most remarkable market story of all,” the strategist wrote in a note from Tuesday.
“Given the sheer size and that of the technology sector, their paths will likely be a major macro-motor of markets in 2021. Investors in all asset classes may need to assess whether valuations are justified and sustainable, ”he writes.
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Therein lies the problem for Tesla fans, especially with its price-to-earnings ratio which stands at 1,278 according to FactSet data. Simply put, the P / E is the share price of an asset divided by its earnings per share.
The average LTM or profit over the past 12 months for the S&P 500 was 26.79. In other words, investors were willing to pay $ 26.79 for every $ 1 profit from an average S&P 500 component, but were willing to pay about $ 1,300 for every $ 1 in revenue Tesla generated in the past year.
That is pricey.
Overall, Tesla’s stock is up more than 656% so far in 2020, as of Tuesday’s close. Meanwhile, the Dow Jones Industrial Average DJIA,
is up 5.8% so far in 2020, the S&P 500 index is up 14.4% and the Nasdaq Composite Index COMP,
has increased by more than 40% over the same period.
However, there are few assets compared to Tesla in 2020. The question now is whether Tesla can drag the market down in the coming year.