As Al Root noted in Barron’s November 25, 2020, Tesla Stock Rises Again, Creating Another Problem for Index Funds, at the current valuation Tesla will be entering the S&P500 Index with a market cap roughly equivalent to Warren Buffett’s Berkshire. As Al explains, this will require index funds to purchase $70b of Tesla stock. The stock has risen 586% YTD with 41% of that coming post the announced inclusion.
At over 900x earnings, we cannot help but wonder if this is a poor time for a vast swath of Americans using index funds to be allocating such a large chunk of their money to Tesla. While Tesla has done a fantastic job capturing the imaginations of many, the charts below compare Tesla to BMW, one of the most established and profitable car makers in the world.
One does not need to be a believer in value investing to see the possible risks in Tesla’s current valuation!
Tesla vs. BMW: Market Cap, Revenues & Profits
Disclaimer
The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.
Nothing herein shall limit or restrict the right of affiliates of Kailash Capital, LLC to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of Kailash Capital, LLC from buying, selling or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of Kailash Capital, LLC may at any time have, acquire, increase, decrease or dispose of the securities or other investments referenced in this publication. Kailash Capital, LLC shall have no obligation to recommend securities or investments in this publication as result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.
November 25, 2020 |
| Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
November 25, 2020
Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin