Tesla Inc (NASDAQ:TSLA) has had its share price recently drop from a high of $386 down to $313. Although it is a significant correction already (almost 20%), it may just be the beginning. The company makes money from hype and future expectations, not so much the here and now. The company has had solid year-over-year revenue growth; however they are yet to turn a profit.
The book value of the company is only $30a share. Compared to the share price, that is a price to book value ratio of over 10, a significant ratio by any comparable. From a valuation standpoint, it is difficult to justify Tesla as a sound investment. The issue at hand is even if the company continues to grow at its remarkable pace; will it be able to turn a profit?
Electric vehicles are still far away from being adopted by the masses. The price tag of electric automobiles is enough to turn people away. Add to the equation lower gas prices and fuel looks a lot more appealing to a person’s wallet. However, that is not to say that there is no long-term potential in the market. One manufacturer, Volvo, went so far as to state that in a few years they will stop selling vehicles powered by gas. Volvo is not one of the biggest producers of cars by any means, but it does suggest a growing trend.
Even if Tesla is able to grow its sales it just might not be enough. Without profitability, or some achieved efficiency to show these types of vehicles can be profitable, it’s more likely further corrections in its stock price will be around the corner.
