It has been an incredible time for those who invested in Tesla (NASDAQ: TSLA) five years ago and held the shares. The Tesla share price is up almost 1,200% in that timeframe. That means if I had invested £8,000 in 2017 I would now be sitting on an investment valued at over £100,000.
Even in the past year, the shares have gained 29% in value. But in April they fell below the $1,000 mark and have stayed below it since then. Could they now be heading into four figures again – and does that mean I ought to scoop them up for my portfolio today?
Positive Tesla share price performance
Despite moving around lately, the overall upward trend in the Tesla share price reflects growing investor confidence in the long-term prospects for the business. There used to be widespread concerns about how big the market for electric vehicles really was, whether Tesla could scale up its manufacturing and if the company could maintain strong growth rates in sales. Those are all still risks, but the company has now repeatedly proven that it is able to grow at speed, even from a large baseline. Last year, for example, sales grew by over 70% even though they had already been large in 2020, at $32bn.
If the company can keep proving that its business model is scalable and stay profitable at the same time, I think that will help investor sentiment. That could help support the shares. Looking at the fundamentals of the Tesla share price valuation though, a price-to-earnings ratio of 110 looks very high to me even for a growth company.
$1,000 within sight
Given the positive momentum in recent weeks, I think the Tesla share price could again move above $1,000. If there is good news such as unexpectedly buoyant sales figures, that could happen quite soon. After all, at the current price the shares just needs to move up 8% to get back to the four-figure level.
But if I do not think they are worth $1,000 even if they may be going there, does it make sense for me to buy them?
No plans to buy
As an investor not a speculator, I think the answer is no. I like Tesla as a company, but even the current valuation looks stretched to me, let alone an even higher share price.
The market capitalisation is a massive $962bn. That is more than 10 times the market capitalisation of Volkswagen, which reckons it can overtake Tesla in electric vehicle sales just three years from now. Tesla would have to keep increasing its earnings strongly to grow into the current valuation, in my view.
That may happen and if it does, it might merit the current market capitalisation of close to a trillion dollars. For now though, I think it is priced for perfection. That could mean that the share price falls sharply if a serious issue comes to pass, like increased competition eating into profit margins. So although I can see that positive investor momentum might carry Tesla past $1,000 again, I have no plans to buy the shares.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.