Tesla Motors Inc (NASDAQ:TSLA) is one of the most exciting companies out there at the moment, but stock in the company is likely headed for a downturn in the next few months. Stock in the firm fell almost 2% to $166.74 per share on Friday after a blog post from an NYU finance professor shook the market.
Aswath Damodaran posted his valuation of Tesla Motors Inc (NASDAQ:TSLA) and come up with a pretty low number, $67.12 per share. If the shares fell to that level they would have lost close to two thirds of their value. The future of Tesla Motors Inc (NASDAQ:TSLA) is not reliant on the analysis of one NYU professor, but shareholders might begin to turn around on the company soon.
Tesla Motors Inc (NASDAQ:TSLA) is being sold on its potential. Investors are looking at the company and seeing the next Apple or Microsoft. That is not the wrong way to look at the company, but investors should be aware that the price is likely to fall at some point between here and utopia.
There are several trends moving against Tesla Motors Inc (NASDAQ:TSLA) at the moment. The company is massively overvalued on its earnings, the stock market is depressed because of uncertainty over Syria and QE3, and competition is heating up. Even if Tesla the company performs exceptionally well in the next few months, the stock may perform very poorly as investors try to lock in their earnings.
Tesla Motors Inc (NASDAQ:TSLA)’s stock price is not based on the value of the company right now, it’s based on momentum trading and stock selling. That doesn’t mean its guaranteed to fall, it means it’s unpredictable. If the stock begins to turn the value might collapse as quickly as it grew.
Mr. Damodaran followed up his post on the value if Tesla Motors Inc (NASDAQ:TSLA) with a second post, this time from the perspective of the bulls. He says that the bull case does not impress him, but he sees some reasons for holding the stock. In his view it’s not wrong to hold Tesla Motors Inc (NASDAQ:TSLA) stock, and it’s not guaranteed to drop.
But the company’s value right now is much lower than the stock market suggests. Investors are being sold Tesla stock, it’s the latest craze. Fads don’t usually stick around all that long, and Tesla Motors Inc (NASDAQ:TSLA) isn’t going to have the cash flow to back up its stock price when investors move on.