Shares of Tesla Inc (NASDAQ:TSLA) are up a staggering 345% this year. That’s miles ahead of the S&P 500 which is up 3%. What’s more impressive is that Tesla’s stock has achieved such gains during a year as challenging as 2020, where the coronavirus pandemic’s leveled economies all over the world into recessions.
When Tesla announced a five-for-one stock split on August 11, its stock would continue to climb even though a stock split doesn’t add any value for investors. It merely reduces their shares in order to bring the share price down. That’s indicative of the irrational bullishness that stock’s seen in recent months and why it’s so grossly overpriced right now.
But it’s been a rough start to September with Tesla and other growth stocks falling out of the gate. Shares of Tesla are down 25% this month but even with the decline, the stock is still incredibly pricey and it could still fall even further.
Currently, Tesla’s stock is trading at a forward price-to-earnings multiple of more than 100 and a price-to-book multiple of 35. While the company’s benefited from strong sales in recent quarters, it may be difficult for that trend to continue, especially as job losses continue to mount due to the pandemic.
The market for high-priced self-driving vehicles may not be sustainable, and a poor quarter could lead to a selloff of the stock. Although Tesla’s posted a profit in each of the past four quarters, with a profit margin of 2% or less, there hasn’t been much room for error. Any sort of decline in future quarters could send the company’s financials back into the red, and that could send the stock into a tailspin.
