Tesla, SolarCity, MPC: Should You Go Long In These Speculative Stocks

Some companiesjust can’t remain out of news or controversies depending on how one looks. Tesla Motors Inc (NASDAQ:TSLA), SolarCity Corp (NASDAQ:SCTY), and Molycorp Inc (NYSE:MCP) are perfect examples of this sort of companies. Sharp corrections, appreciations and crazy valuations, these stocks have it all. With some of these stocks advancing to record levels in the current rally, the debate about true worth of these companies has come to forefront. Here is a closer look:

Tesla, SolarCity, MPC: Should You Go Long In These Speculative Stocks

Tesla Motors A Valuable Automaker:

With its stock price doubling in the last month, Tesla Motors Inc (NASDAQ:TSLA) has become a more valuable automaker than Fiat. Ironical as it may sound, Tesla has no model it can boast of selling globally in major markets. The company produces only one model as of now while another one remains under development. The funny thing with this gravity defying valuation is that the company has shown profit for the first time during the quarter ended March 31. It swung into profits and revenues jumped manifold but there is no denying that a forward price earnings of 86 does not look very attractive. Even though the company adopts a direct selling approach to customers and does not intend to produce traditional vehicles, auto industry is globally a highly cyclical one and Tesla cannot escape this reality. The company has a debt equity ratio of 2.7 and its shares are selling 62 times net asset value. Some of the valuation metrics will come down over the next few quarters but these are still pretty high numbers and let’s not forget, gravity catches eventually even in equity markets.

Musk effect at full play

SolarCity Corp (NASDAQ:SCTY) sells and installs solar panels and has been in news lately because of a lease deal it has signed with Goldman Sachs. Under the agreement, Goldman Sachs will finance $500 million worth of solar panel installation under various projects. Interestingly, the company is headed by Elon Musk – the charismatic businessman who co-founded Paypal and currently heads Tesla Motors Inc (NASDAQ:TSLA). Apart from the deal with Goldman Sachs, SolarCity’s shares are arguably driven by Musk’s headline grabbling statements. With monthly gains of more than 150 percent, one would assume any stock would become expensive and it is not very different in case of SolarCity. The stock is currently priced at more than 20 times of its book value while price by sales ratio is also high at 29.

Rare earth metal producer Molycorp Inc (NYSE:MCP) has seen wild valuations followed by a sharp correction that started in 2011 and stretched until 2012. It is only now that the stock has started looking up after beating street expectations in the latest quarter and positing narrower losses. The stock has marched ahead 38 percent over the last month or so but still trades at a 6 percent discount to its book value. The prolonged correction caused this huge underperformance in the stock which seems to be going away only now. However, this could very well be a value trap as mining sector is still in doldrums and huge discounts to book value is more of a norm than exception. Given the capital intensive business of mining, its debt equity ratio of 0.95 does not appear to be very high but the nagging worry remains about the business itself – whether the demand of rare earth metals will pan out as expected.

On a whole, only Molycorp Inc (NYSE:MCP)’s current market price looks in line with business fundamentals. This is not to say that Tesla Motors Inc (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY) have no room to go up further but speculative interest seems to have taken over rationality in latter ones.

Check out this too: Elon Musk  Might Be A Real Life Tony Stark

About the Author

Sheeraz Raza
Sheeraz is our COO (Chief - Operations), his primary duty is curating and editing of ValueWalk. He is main reason behind the rapid growth of the business. Sheeraz previously ran a taxation firm. He is an expert in technology, he has over 5.5 years of design, development and roll-out experience for SEO and SEM. - Email: sraza(at)valuewalk.com