Aswath Damodaran, a New York University finance professor reputed to have predicted Apple’s peak, and Facebook’s low point has said in his blog that Tesla’s stock (TSLA) is presently overvalued by $100.
In making his assertions, Damodoran has reportedly received angry comments from people betting on Tesla. Last week the stock rose into the low $170s, before dipping to below $167. On Monday’s open, it’s hovering in the $163 range having dropped further in after hours trading.
But this value is too much, said the NYU professor – who is called a “valuation expert” but reportedly does not like this descriptor. What does he say it should be selling for? More like $67.12, and some folks really were none too happy to read his opinions.
“My post on Tesla must have touched some nerves because I got more than my usual share of backlash from Tesla bulls,” he said. “While some of it was just vitriol, many contained interesting counter arguments to mine.”
In his post, Damodaran forecasts revenue of $65.42 billion in 2022. He takes an optimistic view saying Tesla is an automobile company that specializes in electric cars, and measures its potential revenues by looking at the biggest automobile companies today.
Assuming Tesla will continue to focus on high-end automobiles, Damodaran said that “the technological and innovative component that sets Tesla apart will allow it to deliver a pre-tax operating margin of 12.50% in steady state.” He expects the most substantial margin improvements in “the near years.”
Following up on his post, he adds three justifications for bullishness:
1. Tesla could be a disruptor. “Just as Amazon upended the retail business and Apple the smart phone business in the last decade, it is possible that Tesla will create a new paradigm for a successful automobile company: a company that generates Ford-like revenues with Porsche-like margins.”
2. Tesla’s real innovations are in its power train and battery technology. “I may have misclassified Tesla as an automobile company.”
3. “If Tesla is more technology than automobile company, there is the possibility that if it can establish itself as the leader in the business, there may be a tipping point, where size feeds itself.”
“I stand behind my judgment of value for Tesla in the my last post, but all I would take out of that valuation is that I would not buy Tesla at today’s price. Given my fear of getting whipsawed in the momentum game, I would not sell short either,” said Damodaran. “It was not meant to be investment advice. I am a firm believer that investors have to take responsibility for the own choices and I will respect yours. Thus, if you are a long-term investor in Tesla, because you believe that there are viable pathways to a value higher than the price, I understand your motives. If you are a trader who is playing the pricing game with the stock, I can tell you that I wish I could play that game as well as you do, but I stink at it. So, I won’t even try.
All this said, Tesla has seen dips in excess of 10 percent in recent months, and after the sell-off, has risen to new highs.
Time will tell whether this will be more of the same.