With S&P Global Ratings having upgraded Tesla Inc. (NASDAQ:TSLA) stock due to the positive impact they view the company’s recent share sale having on the company’s cash position, investors who may be on the fence with respect to this technology stock may be enticed to add a position. After all, a ton of momentum exists here with this stock today, and many momentum investors have become very wealthy riding on the coattails of this recover.
That said, momentum investing is inherently dangerous. This is because when momentum stocks turn around and start going the wrong direction, the correction can often be as fast, or faster, than the underlying stock’s rapid rise. Tesla’s valuation is completely out of whack, and most analysts agree on this point. That said, the capital inflows that have been required for the company’s S&P 500 listing have indeed provided the boost Tesla investors expected.
The reality is that every stock is a discounted measure of a company’s expected future earnings potential. A significant amount of future earnings potential is currently priced into Tesla at these levels. Investors who have held on for this ride have done quite well, however, we have also seen significant downside potential in the past on the volatility front, making this a difficult stock to trade, and an even harder one to hold on for the long term, in my view.
Unless one has the patience to wait at least 30 years for the company to realize a significant portion of the future earnings that are priced in, I’d steer clear of this stock today at these levels.
Invest wisely, my friends.