Chris Trottier

2024-07-26 06:27:30

I prefer indexes and do not invest in individual stocks.

But what I know is that, for a mature company, a P/E ratio between 5-20 is generally a fair valuation.

For a “growth” company, you can afford a higher P/E but only if the revenue growth potential is realistic—otherwise we enter into euphoria and the multiple represents risk.

If we are to believe the P/E ratio, Tesla has greater potential for growth than Apple, Microsoft, and Amazon.

And I have to ask, based on what?

Personally, I don’t believe Tesla is a technology company in the same vein as the other companies I mentioned. All those tech companies have monopoly power in their respective industries, and have used their monopoly power to leverage growth in new industries.

Tesla has no monopoly power and yet it has a higher P/E ratio.

And because it’s a megacap, it puts the greater market at risk when—not if—its share price plummets to a saner valuation.

You may say the market is always forward looking, and this is true. But “forward looking” is often just a fancy way of saying “wishful thinking”.