Should You Buy Tesla Stock After Trump's Election Win?
Shares in Tesla popped on the outcome of the presidential election. Is it time to buy?
Tesla (TSLA) stock soared on the outcome of the 60th U.S. presidential election, helped in no small part by CEO Elon Musk's ardent support of Donald Trump, now the 45th and the 47th man to win the White House.
Few things have greater allure for investors than the sight of rising prices, which leads to the question: should you buy Tesla stock?
To answer this question, it helps to look around one's physical environment. Are you reading these words at a desk with, say, six monitors displaying changes in asset prices across the globe in real time? Are these numbers fluctuating between the colors of red and green?
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If the answer is “no,” then no, you should not buy Tesla stock based on the outcome of the election. After all, the idea is to buy low.
Besides, retail investors who own diversified funds that track the S&P 500, the Nasdaq Composite and the Nasdaq-100 probably have enough exposure to TSLA already. The electric vehicle maker's market cap of more than $920 billion gives it ample weight in these benchmarks.
TSLA stock: The Street weighs in
But let's say you are a stockpicker. Is Tesla a buy at current levels?
Certainly industry experts who cover the stock intensely should know. The problem here is that Wall Street is heavily split on the name.
Of the 52 analysts covering TSLA stock surveyed by S&P Global Market Intelligence, 12 rate it at Strong Buy, six say Buy and 19 have it at Hold. Furthermore, four call TSLA a Sell and seven say it's a Strong Sell.
This works out to a consensus recommendation of Hold. Meanwhile, the Street's average price target of $222.96 gives Tesla stock implied downside of more than 20% from current levels.
Part of the bear case on Tesla stock has always been its valuation, but that hasn't really worked out so far. The stock always looks expensive. Indeed, TSLA trades at 115 times expected earnings per share. And it has always been volatile. It sports a five-year beta of 2.3 and suffered a maximum all-time drawdown of 73%.
Volatility is a proxy for risk because it increases the odds of buying high and selling low.
And yet, despite these issues, Tesla stock has been a massive market-beater over the longer term. True, TSLA lags the S&P 500 badly over the past one- and three-year periods, but beyond that it has generated outstanding outperformance. Heck, over the past five years, TSLA beats the broader market by about 50 percentage points on an annualized total return basis.
On the other hand, as every prospectus says, past performance is not a guarantee of future returns.
If you were a Tesla bull before Tuesday night, hey, don't let the dream die. But adding exposure to Tesla stock when it's popping on knee-jerk trading action is generally not part of a sound investment process. At least not if you're not a professional.
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