Andrew Dickson, founder of Albert Bridge Capital, warns that the Tesla share price has a great deal of good news baked into it.
Tesla, led by billionaire Elon Musk, enjoyed a stellar performance in 2023, achieving 96% share price growth year-to-date.
It had an even better three-year performance, with the electric motoring brand’s share price increasing by over 1,100%.
Dickson discussed the Tesla share price in a Twitter thread, warning investors to be cautious when buying these stocks.
He said five years ago, Tesla traded for $19.61 per share. At the time, the consensus 2023 earnings per share (EPS) expectation for Tesla was $2.81. Today, it is $3.16, or 12% higher.
Despite the meagre EPS growth, the Tesla share price is up nearly 1,000% to $212.
Dickson said part of the share price increase was justified as five-year forward earnings expectations increased by 336% – from $2.81 to $12.24 – from 2018 to 2023.
“If the stock had merely increased by the improvement in those forward fundamentals, it would be at $85,” he said.
He argues that because the share is trading at $212, only about 30% of the stock move was driven by improved fundamentals.
Put another way, 70% of the Tesla share price growth was possibly driven by meme-stock frenzied multiple expansion.
He said Tesla fans believe it is the company of the future and will bring the world innovation like Teslabots, Megapacks, full self-driving cars, and supercomputers.
While there is a probability that this will happen, many things must go according to plan to make it happen.
“The market cap of Tesla today already reflects some, if not all, of these futuristic expectations,” Dickson said.
If Tesla traded at $85 per share, it would be an electric automotive company with a market cap of $300 billion trading at a price-to-earnings (P/E) multiple of 27 times.
With native EPS growth of over 20% in 2023, Tesla would have had to work hard to regain positive earnings growth in 2024.
However, Tesla’s market cap is not $300 billion. It is $740 billion, making it the world’s most valuable car company.
“That means the market is already implicitly assuming that these moonshot businesses are worth $440 billion today,” he said.
The challenge for Tesla fans is that it is difficult to know that things aren’t working out for the company.
“It is going to be extremely tough for the investor that has done well owning Tesla to be objective about what the world looks like going forward,” he said.
He advised Tesla investors to pre-define what will show that Tesla is not performing as expected and stick to it.