Tesla just unveiled a brand new product this past week, “Solar Shingles”, and they are beautiful. Since our office is Northbrook IL, a northern suburb of Chicago. And there is a Tesla dealership about two miles north of our office in Highland Park, we have gotten more than a few calls asking if Tesla stock is a good investment.
Investment advisors, stock brokers, financial planners and analysts get questions like this all of the time. What is the best stock to invest in? What investments are you buying? But most of the investment advisors I know cringe at this question. But in the interest of talking about Tesla…let’s first take a look at Tesla, and then circle back to ask if Tesla is a good investment for your portfolio.
Tesla’s fundamentals are an interesting case study right now. Up until this last quarter Tesla had never posted a profit. Just in the last few days, we learned that Tesla had posted a surprise profit this past quarter. The consensus estimate for earnings this past quarter was -$1.14, but instead earnings came back at $0.14 cents a share. This is a massive surprise for any company. Tesla accomplished this feat by making very large cuts to investment, and pushing current car deliveries to their limits. Good work…but is it sustainable?
Additionally, just this past week Solar Shingles were shown off at an event that was held on the old set of “Desperate Housewives.” And the verdict seemed to be very positive. Elon Musk has been pushing the board of Tesla to approve the purchase of Solar City a firm that has been run by Musk’s cousin. The purchase of Solar City has been ridiculed by most of the investment advisor world. But Musk is starting to make the case that very soon homeowners will be able to purchase a roof, energy storage and car for less than the cost of buying a roof, car and electric…over time. Just in time too, the 2001 station wagon in my garage could use an update.
So if Tesla is coming out with all this great stuff, are they the new Apple? Hardly. The foretasted price to earnings ratio for Tesla in 2018 is in the mid 70s. (http://www.nasdaq.com/symbol/tsla/pe-ratio). A P/E ratio in the 70s sounds more like stocks everyone was talking about during the dot com bubble, where as Apple is looking more like a value stock as of late. Nobody is rooting for Tesla to prevail as much as I am…well, maybe Musk himself. I love everything Musk does; he is basically our real life version of Tony Stark. We need visionaries like him, and I personally wish we had 20 more just like him. But as an investment in your portfolio…that may be another story all together.
This brings me back to the investment advisor question. Should Tesla be in my portfolio? Any investment advisor worth their weight isn’t going to answer this question without knowing a whole lot more about the investments that you are currently in, your risk profile, your retirement income needs, and a whole lot more. In general investment advisors are not going to suggest individual stocks for your portfolio unless you are well diversified with the rest of your portfolio.
Our guidelines at Deep Blue suggest that the majority of client investments should be made up of very low costs index funds. U.S. Stock, U.S. Bonds, and some international exposure put together in a way that diversifies your portfolio, manages tax exposure, mitigates risk and satisfies someone’s need for growth over long periods of time. If all of this is already accomplished in your investment portfolio…and you can afford to lose the money, then I have no problem with a client breaking off <5% of their portfolio and rolling the dice with a company like Tesla. But if you don’t already have a well-balanced diversified portfolio, look elsewhere first.
Article By: Adam Faust, Founder – Deep Blue Financial, LLC