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Current valuation prices in future potential. And it's logical for it to do so. It's irrational to look at P/E and determine a company's value based on that. H

Current valuation prices in future potential. And it's logical for it to do so. It's irrational to look at P/E and determine a company's value based on that. Here's a thought experiment. It's not a realistic one and is not supposed to prove that Tesla is not overvalued, but just out of interest, I'd like to see some responses. How would you value a company that has $10,000 profit this year and is expected to grow in profit 50% each following year and this growth would last infinitely? What about a company that is expected to grow 50% each year until $1T profit?

simonh 6y ago
I don't think anyone here has argued that possible future value can't override current P/E in principle. I'm certainly not arguing that. It's pretty obvious and well established. It's even possible Tesla will eventually improve it's P/E ratio by at least 50x to reach a more typical figure. That's also quite plausible, after all the big car giants now weren't always world dominating conglomerates. No problem there either from me. Where I think the current valuation departs from reality is the time it is likely to take to do that, and the risk that it won't happen at all. The current valuation only makes sense if that 50x ramp up in scale is pretty much guaranteed (not 10x, not 20x, but 50x at least) and will also happen in a few years. Technically they could be betting that the growth will be a lot more even than that, far bigger than the current entire car market, but with increased risk I suppose. I don't think that's what's happening though. What's actually happening is these recent investors over the last 6 months have simply bet that the Tesla share price will shoot up in the near terms and they'll be able to flip the stock to turn a rapid profit, and they've been right. They've made no bet at all on Tesla's long term prospects. That's why Elon tweeted a few months ago that he thought the stock was over-valued.
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webinvest 6y ago
PEG Ratio

simonh 6y ago

I don't think anyone here has argued that possible future value can't override current P/E in principle. I'm certainly not arguing that. It's pretty obvious and well established. It's even possible Tesla will eventually improve it's P/E ratio by at least 50x to reach a more typical figure. That's also quite plausible, after all the big car giants now weren't always world dominating conglomerates. No problem there either from me. Where I think the current valuation departs from reality is the time it is likely to take to do that, and the risk that it won't happen at all. The current valuation only makes sense if that 50x ramp up in scale is pretty much guaranteed (not 10x, not 20x, but 50x at least) and will also happen in a few years. Technically they could be betting that the growth will be a lot more even than that, far bigger than the current entire car market, but with increased risk I suppose. I don't think that's what's happening though. What's actually happening is these recent investors over the last 6 months have simply bet that the Tesla share price will shoot up in the near terms and they'll be able to flip the stock to turn a rapid profit, and they've been right. They've made no bet at all on Tesla's long term prospects. That's why Elon tweeted a few months ago that he thought the stock was over-valued.

deleted 6y ago
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deleted 6y ago
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webinvest 6y ago

PEG Ratio