OPINION: Tesla's stock is in a bubble. It is going to crash.
After all, it has more than quadrupled since last summer, and short sellers have been insisting ever since that a bubble is forming.
The probability of that 40% or more price drop rises as a function of the magnitude of the prior two-year return. When the price run-up is 100% or more, they found the probability of a crash becomes 50%. When the price run-up is at least 150%, that probability becomes 80%, and as price run-ups become even bigger, a crash becomes “nearly certain.”
Another factor increasing the odds of a crash is an inflated price/earnings ratio. This also applies to Tesla, of course, since it currently doesn’t even have a P/E, given that it lost money over the last 12 months. Its forward-looking P/E, based on estimated earnings per share over the next 12 months, is 85.7, according to FactSet — more than four times higher than for the S&P 500 SPX, +1.50% .
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