Tesla Inc.’s quarterly results this week drove home the lesson that profit and sales numbers don’t seem to matter much for this stock anymore. Instead, it’s Elon Musk’s narrative that’s wooing investors at the moment.
Greg Martin, managing director of Rainmaker Securities, says Elon Musk and Donald Trump's close relationship may bring advantages to SpaceX and Tesla.
That’s an unusual reaction from equity investors, especially after they bid up the stock ahead of the report by nearly 80% since late October. As a result of that rally, the typically expensive valuation of the shares climbed to even loftier heights and dwarfed that of other mega-cap technology companies’ seen as Tesla’s peers. As of Thursday’s close, the EV maker’s stock was trading at 127 times forward earnings, compared to the 31 times average multiple for the biggest seven tech stocks.
“Who cares about estimates when Tesla is providing you supercharged narrative command,” said Dan Levy of Barclays, while JPMorgan’s Ryan Brinkman said the shares have “become completely divorced from fundamentals.” Tesla shares have been on a tearing run since Donald Trump won the US election in November, as investors bet that the friendship between Musk and the president will help the company realize its AI ambitions. But given the EV business still brings in 90% of its revenue, the health of that operation remains key.
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