It’s been few months since I went to central London, thanks to lockdown, working from home and virtual offices. On those pre-covid days I had only seen few cars charging themselves at some electric stations. Had not really paid huge attention to those vehicles.
This weekend had a closer look at a Tesla car and Renault car charging up in the parking lot of a local high school where I took my son for the weekly football class. Couldn’t move myself from the scene. To my son and his friend, both at year 2 in primary school, it was a fantastic thing.
Electric cars are here to stay. While Tesla is going to have lion’s share., you can’t discount other companies. When the internal combustion engine cars were made to the messes by Henry Ford with his model-T motor, General Motors soon emerged as a leader as well. GM was in the business of coach making for hourse all those days.
That’s the whole point. Tesla will be the leader, but we need to see existing automobile companies and how soon and efficiently they come up with their electrical vehicle. More important their ability to compete with Tesla and sustain needs to be checked.
People have too much hope on Tesla. Out of curiosity, I looked at the PE ratio of Tesla. Its 958.. you csn safely round it to 1000. A company trading at 1000 times would sound insane, but that is what we are seeing.
For a sensible investor, a price earning multiple of 100 itself is too expensive. To put it in simple terms, the ratio denotes the number of years it takes for the company to earn the price back to the investor if it continues to make same profit every year. Going by that logic, it might take 958 years for Tesla to fetch it’s price.
One may argue that Tesla would increase it’s profit at an exponential rate and justify this exorbitant valuation. On the other end of the spectrum we have companies like ITC that are trading at 17 times its earning. A debt free company, market leader, good dividend yield..
This is not to suggest a BUY recommendation on ITC, but to indicate how polarized risk appetite of investor community is. Even if you want to discount ITC as an old fashioned company, you can still go ahead with numerous others below 100 PE ratio. (I never thought a day in my life where I would have to call 100 price multiple as cheap)
People are tempted to believe and follow others. Your money, your decision, your conviction.