Wednesday, November 28, 2018

Tesla vs General Motors (GM; TSLA)

This isn't about the trials and tribulations of the two companies nor their futures but rather the curious similarities in the stock market's evolving enthusiasm about their prospects and thus their valuations.

This is a repost from June 3, 2013 so add five years of up moves to the Tesla chart—$387.46 all-time top-tick vs. $114.90 on the chart below—but the point still stands, in broad outline.
From Forbes:

Tesla Stock Today Looking A Lot Like General Motors In 1915
One of the hottest, if not the hottest, stock stories in the market today has been Tesla Motors TSLA -5.83% (TSLA), the brainchild of Elon Musk, co-founder of PayPal who has also resurrected the private space industry with his SpaceEx venture. Musk has also been compared to such icons and visionaries of American industry as Steve Jobs or Henry Ford, but what we find most interesting about Tesla is how it compares to General Motors GM +0.18% (GM) back in 1915, a company that succeeded in taking the nascent U.S. auto industry to a new level with its introduction of the production V-8 engine, a major development at the time.

Tesla’s approach to the electric automobile is a stark contrast to the efforts of other automobile companies that have essentially reduced the electric car concept to one of ugly utilitarianism while failing to address the broader issues of infrastructure and a sound technological platform that are necessary for the longer-term success of electric car industry....
...The truly “eerie” resemblance that Tesla has to General Motors in 1915 is it price action. We’ve drawn the price action of General Motors from 1911 to 1915 on a piece of graph paper to give you a visual idea of GM’s price performance during that period. 
GM came public in 1911, and essentially moved sideways for about two-and-a-half years before breaking out at around the $34 price level and launching above $80 in a few short weeks in early 1914. This initial move is similar to TSLA’s breakout from $40 to over $100 in a few short weeks. General Motors in 1914 then went sideways for nine months, including four months during which the market was closed due to American involvement in World War I, before it launched on a 471% upside move over the next 39 weeks. 
Similarly, Tesla became public in 2009 and moved sideways for about two-and-a-half years before launching from about the mid-40’s to a high of $114.90 at the time of this writing. Many look at this price move as unjustified on the basis of the stock “getting ahead of the fundamentals.” However, we would point out that currently Tesla is trading at about 100 times forwards estimates, a P/E ratio that is not unheard of for the stocks of companies with game-changing technologies or concepts, from eBay (EBAY) and (AMZN) in 1998 to (CRM) from 2009 to 2010. Thus on this basis the stock is far from overvalued, and those who have shorted the company have paid a very dear price indeed....MORE
This comparison is a bit facile. The entire market was bullish, led by the newer technologies and the "War Brides", companies that would profit from WW I. GM fit into both categories. One of the big movers of the 1914-1918 bull market was Bethlehem Steel whose stock traded through 1913 with a desultory $30-handle and went to $600 in 1915: