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Is it a good time to invest in TESLA?

Author:

Othman (MSc) is Construction dispute consultant with passion in reading about investments, company forensics and the stock market.

The answer is: You are asking the wrong question – and here’s why;

Whether you are a good old V8 petrol car enthusiast or an Electric Vehicle “EV” fan, you cannot deny that TESLA has made a disruptive impact on the car and technology sector – and it’s here to stay. As an eager investor looking for capital appreciation and growth opportunities, TESLA seems like an amazing prospect.

TESLA stock price skyrocketed to an all-time high of $1,794.99 per share from $211.00 in less than a year! Beating all analyst and expert expectations. However, the question is, shall we buy now or wait for a lower entry price?

is-it-a-good-time-to-invest-in-tesla

First of all

If you are an investor, the entry price should not be a major issue or concern. You should be assessing the company from various perspectives such as:

1- The company’s financial status and fundamentals.

2- The company’s leadership and status in the market.

Love him or hate him, Elon Musk is currently the CEO of TESLA and is internally supported and with an ever-growing fan base and following. It’s safe to say that TESLA has a vision for the future and trust of the market. Although competition is heating up, especially in Europe and China, TESLA is miles ahead from competitors such as Nissan (&Renault), Audi, and NIO.

As illustrated below, Tesla is maintaining a competitive edge in one of the most important consumer parameters: Range.

is-it-a-good-time-to-invest-in-tesla

Form an analytical point of view, they still have revenue issues, low margins and barely made a profit in the second quarter of 2020 – thanks to regulatory credits. In addition, debt accumulation to fuel growth remains a risk for investors if TESLA fails to maintain and increase its actual market share. Other issues include the absurd market cap valuation and estimated future earnings that do not justify it.

By July-20 TESLA became the most valuable car company in the world

is-it-a-good-time-to-invest-in-tesla

Some might argue that TESLA is more of a technology company that makes cars and with amazing future potential and hence the valuation. However, this potential must be supported by higher profit margins, growth, and a sizable return on investment. Otherwise, it will leave many of TESLA investors in the dust.

As a reminder, before buying into any stock you should delve more into the company financials and hard facts. You will find them readily available on websites such as yahoo finance or morning star (Info available in Excel format too).

So what now ?

One of the safest ways to buy volatile stocks is by averaging. After determining, how much money you can invest, your risk appetite, and budget for a specific sector; allocate a budget for a certain stock, let’s say $5,000. Don’t go ahead and put all the money at once, divide it into 3-4 positions (depending on your budget and risk appetite). If you buy today with lets’ say 30% of your budget and your worried you are buying high, wait for some time before buying again, and so on. You should have a systematic approach and as always, don’t let the fear of missing out get the best out of you.

See the below example:

Buying in portions

DateShare Price ($)Amount Invested ($)No. of Shares Bought

14-Aug-20

630

1,000

1.6

13-Sep-20

678

1,000

1.5

13-Oct-20

611

1,000

1.6

12-Nov-20

484

1,000

2.1

12-Dec-20

530

1,000

1.9

Resulting in

The difference between the Dollar average price and average share price is minor, especially if you are planning to keep the asset for the long term.

Average Share Price

587

Number of periods

5

Dollar Average Price (Using Simple Harmonic Mean)

578

Nevertheless, you should consider:

  1. The additional fees paid with more transactions.
  2. Is there a justifiable reason to continue investing in the company?
  3. Your financial status and capacity to invest money.

The stock market (Technology sector especially) has seen significant cash inflow in recent months and prices have been skyrocketing even amid a pandemic, leading to overvaluation of many companies (although it’s justifiable to some companies, it cannot be generalized over the whole sector). If you proceed into investing now, be prepared to hold the market swings and inevitable corrections.

Shall I buy TESLA stock before battery day?

Never base your decision to invest in hyped events or news. Battery day has been announced on the 22nd of June-20 and the hype has been probably factored in the price. You can never be sure what will happen in the future, the price might crash down to $200 or even skyrocket to $2,000. Don’t base your decision on fear of missing out. Do your research and adopt an investing strategy, as discussed above.

The Gist

  1. TESLA stock value is bound to some form of correction. If you already made up your mind and decided to invest in the company, consider averaging your positions (buying in portions).
  2. Only invest in companies you believe in and understand.
  3. As for battery day, never give in to fear of missing opportunity– You can have a look at my own mistakes and experience at https://hubpages.com/money/The-news-before-the-news-Fear-of-missing-out.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2020 Othman

Comments

Othman (author) from UAE on August 19, 2020:

Unfortunately a lot of people will loose money like you said Juhamatti. Those who bought at 1,800 are happy to see a positive return, thinking it will always go up.

Am waiting for a better entry position , between 900-400, what do you think ?

Juhamatti Niskasaari from Finland on August 19, 2020:

I would invest money to it, but when you should get that invest back is the different question. That is clear the price will go down and that way many people will lose money. Tesla going to by huge know and huge in the future.

A lot of different rivals coming into the race!