Even car manufacturer Tesla's CEO, Elon Musk, thinks that his stock is overvalued.
'The stock price that we have is more than we have any right to deserve,' Musk told Bloomberg News.
Indeed, in the past year alone Tesla's (Nasdaq: TSLA) share price has gone from around $30 in November 2012 to a peak of $194 in September of this year, before settling back down to around $140 recently.
Sure, Tesla's one-year chart may look like it climbed the face of Mt. Everest, but I wonder if this time next year, it will have rolled down the backside -- regardless of the pretend value its love-struck investors have placed on it this year.
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Let's take a look at some of Tesla's numbers.
For one thing, the 52-week jump in price to $194 gave Tesla a stock market valuation of $23 billion. That's one-third the value of Ford (NYSE: F) and half of General Motors (NYSE: GM), and both sell 100 times more cars. This premium value seems a little out of whack with the company's recent reporting.
And last week, Tesla reported so-so third-quarter earnings -- despite the fact that sales were up and production was up. In addition, revenue from zero emission government credits fell from $51 million in the second quarter to $10 million in the third. That may not sound like much in the world of billion dollar car makers, but the loss of $41 million puts a significant dent in Tesla's $746 million in cash on its books. That's cash the company desperately needs for innovation.
In spite of these less than appetizing reports, on Monday Tesla's investors still pushed the stock up nearly 5%. What we're looking at could very well be chalked up to irrational investor exuberance.
One day investors shrug off some potential detriments to sales going forward: the high $63,570 Model S price tag, the need to charge the car's battery every 200 miles, and Tesla's delivery of just 2,000 cars a month. The next day, they turn the calendars forward a couple of years and celebrate what might be, completely ignoring the challenges of the here and now.
I’m just not so sure I'd want to be riding on the same rollercoaster as Tesla's fan club, waiting for time to pass and the carmaker to mature.
That said, I'd rather put my money on a company that has become the epitome of 'undervalued.'
This company is a $51 billion automaker, and it just posted a 12% jump in sales in October. It's the top automobile seller in China -- one of the fastest growing car markets in the world. And it's also the top seller in the United States.
In addition, its 2014 flagship model just won Motor Trend's 'Car of the Year,' beating out the likes of BMW and, ironically, last year's winner, the Tesla Model S.
Take a look at the steady share price growth this company has experienced over the past year. It looks nothing like Tesla's meteoric rise, but as I said, Tesla could be looking at a lot of volatility in coming months as investors come to terms with the company's limitations.
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The company I'm talking about here is General Motors.
GM's stock price is around $36 per share, today. That's up 25% year-to-date and 52% over the past 12 months. And I expect there's plenty more room for growth based on current numbers.
With a monster $42 billion total cash and credit on the books, GM is repurchasing $5.5 billion worth of its outstanding shares from the government. That's going to increase the value of investors' shares, which shows that GM is concerned with keeping shareholders happy.
Also, GM is poised to add more cash to its hoard.
For example, in the first quarter of 2013, GM acquired Ally International (the international division of its old finance subsidiary, GMAC) and announced record vehicle sales in China where the company has approximately a 15% market share.
And GM plans to refresh 80% of its model lineup by 2014, which includes replacing its current 7-year-old GMT900 truck portfolio.
These types of moves have analysts suggesting that compared to other major U.S. and overseas automakers, GM's stock could easily be undervalued by as much as 20%.
And in another huge vote of confidence, 'Master of Value' Warren Buffett is betting on GM. He increased his stake to 40 million shares mid-year, which is a testament to how far GM has come since filing for bankruptcy in 2009... and how far it may be going.
Action to Take--> Since emerging from bankruptcy in 2009, GM has restructured and come out with a healthy balance sheet, concrete plans for international expansion, and a new line of cars for 2014. Its share price is reflecting the positive direction the company is taking, and investors would do well to take notice.
