Investment Insights & News

Sexy, Edgy, and Hot: What a Combination

Ron Gambassi
November 10, 2013

Before you get too excited...

The image below is a reference to the new Tesla Model S.

It’s all of those things, and candidly, I would love to own one, even though “hot” in this case is both an apt metaphor and a reference to the fire-prone battery system.

Tesla will get its battery problems sorted out. It could have happened to anyone. Oh wait, it did . . . Boeing, and they have the best engineers in the world.

Since this is an article about finance and investments let’s “change gears” and discuss Tesla Motors (TSLA) as a proxy for investing in general.

The stock trades around $135 per share, down from $194 just a few short weeks ago. Its price hovered between and $20 and $40 per share for most of its short lifespan until April of 2013 when it began a meteoric rise to the high levels of recent weeks. To its credit, the car got a very favorable safety report which contributed to the march upward in the stock price. The car is beautiful. Sometimes we even refer to vehicles in the “feminine” by saying, she is beautiful.

Now let’s look under the hood (pun intended), not at the engine (it’s beautiful) but at the financials. The stock rose 338% from April through October. The S&P 500 is up about 9% over that same period. The price/earnings ratio of TSLA is non-existent because there are no “earnings” yet. In fact the company is losing about $1.95 per share. Schwab projects a forward P/E next year of 241, which compares to about 17 for the S&P 500.

Sexy, edgy and hot might be good reasons to purchase a car, a tuxedo, or an evening gown but they are terrible reasons to purchase investment assets. In that part of your life, stick to boring, steady, and proven over time.

Disclosure: TSLA stock is not in my personal or any client accounts. It has never been and there is no intention to purchase any in the foreseeable future.

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