Tesla share price recorded a 400% surge in 2020 itself. The steep increase has become a cause of debate as investment researchers ring the alarm on Tesla stock split. David Trainer, New Constructs CEO, names Tesla the most dangerous stock on Wall Street. He further adds that the fundamentals do not support such a high Tesla share price and valuation. In an interview with CNBC’s “Trading Nation”, he said, “Whatever best-case scenario you want to paint for what Tesla’s going to do –whether they’re going to produce 30 million cars within the next 10 years, and get in the insurance business and have the same high margins as Toyota, the most efficient car company with scale of all-time – even if you do believe all that is true, the stock price is still implying that profits are going to be even bigger than that. ”
Trainer pointed that the increasing Tesla Share Priceimplicates a 40% to 110% increase in market share based upon the average selling price. This means that if we go by the current average selling price of $57,000 and assuming 10.9 million car sales by 2030, it means that Tesla would soon acquire 42% market share. He also mentioned that currently Tesla trades at 159 times forward earnings.“We think this is a big, big – one of the biggest of all time – house of cards that’s getting ready to fold,” Trainer further added.
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Tesla Stock Split
Trainer did not shy away from bringing into notice the recent Tesla stock split that could further add to the problem and could even prove dangerous to new investors getting into the stock. In the interview, he mentioned, “Tesla Stock splits are inconsequential to value. They’re not changing the size, they’re just dividing it up into more pieces. Honestly, I look at the stock split as a way to lure more unsuspecting, less sophisticated traders into just trying to chase this stock up and that is not a real strategy.”
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Tesla CEO Elon Muskannounced the split of Tesla stock five to one on August 31. However, the stock went down by more than 5% after Ballie Gifford, Tesla’s largest outside shareholder, reduced its stake holding in the company. The stock also faced broader sell-off that rebuked some of the market’s high momentum names.
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According to Trainer, a more accurate evaluation would be far lower than current levels. He added, “I think around 1/10th of what it is is probably appropriate if you look at, you know, kind of a reasonable level of profits. Tesla doesn’t rank in the top 10 in market share or car sales in Europe for EVs and that’s because the laws changed in Europe that have strongly incentivized the incumbent manufacturers to crank up hybrids and electric vehicles. The same is coming in the United States. I think realistically we’re talking about something closer to $50, not $500, as a real value.”
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