Thanks to a depressed economy, Tesla could become the world's most valuable company before the stock finally goes haywire.
Tesla (NASDAQ:TSLA) is on course to become the world’s most valuable company by market cap. It sounds outlandish, but Tesla stock has crossed the $1,900-mark, and analysts are predicting it will go higher.
More sober analysts have been predicting for months that the Tesla stock bubble will burst. They may be correct that Tesla is massively overpriced. But so far, the bubble hasn’t popped.
Why? Because of the struggling global economy, which will make high-growth stocks attractive for as long as GDP growth and interest rates are depressed.
Tesla stock has surged since the company announced a five-for-one stock split. It jumped from $1,374 on August 11 to $1,934 in Tuesday’s pre-market.
You’d think that a stock price of over $1,900 would be “enough” for investors and analysts. But no, at least three significant analysts have set target prices above $2,000.
Wedbush’s Dan Ives has set a “bull case” target of $2,500 in a letter to investors. Piper Sandler’s Alexander Potter has set a target of $2,400, while Oppenheimer’s Colin Rusch’s has gone for $2,209.
Last April, Ives’ target was $275. This shows just how quickly expectations for a stock’s price can rise.
At the moment, Tesla stock is likely to continue higher. Even the slightest positive news is having an outsized effect under the current economic conditions.
News of Tesla’s upcoming Battery Day–when it likely unveils new EV batteries–had a significant role in Monday’s rally, for example. The likes of Bank of America and Morgan Stanley have upgraded Tesla stock in anticipation of the event.
The stock also rallied by over 5% after the carmaker announced a modest profit for Q2 2020. This profit was only $104 million, but given that market expectations are so astronomically high, even the slightest profit is enough to confirm hopes.
Tesla is in an ideal position. As an EV carmaker, it can credibly claim that its best years are a decade away.
This is why it could very well come close to becoming the world’s most valuable company by market cap. It’s a ridiculous idea, yes, but so too is Tesla at $1,900. And this has already happened.
Assuming Ives’ “bull case” target of $2,500, the carmaker’s market cap would hit $465.9 billion. This would take it ahead of Visa, making it the eighth-most valuable company in the world, behind Berkshire Hathaway.
It would need a price of roughly $10,600 to overtake Apple, which has a market cap of $1.96 trillion. This is a huge target, but it will be made easier by its five-for-one stock split.
After the split, Tesla would need to rise to around $2,120 to become the world’s most valuable company. This is doable given the hype that has surrounded Tesla up until now.
It’s also doable under the present circumstances. Fitch has predicted that GDP levels will be 3% to 4% lower in advanced economies for the next five or so years. The Fed is forecasting zero-bound interest rates until at least 2022.
A low-growth economy like this is ideal for Tesla. Short of “normal” investment outlets, investors will pump money into high-growth stocks such as Tesla.
Assuming they continue to do this for several years, Tesla could very well become one of the world’s most valuable companies before its bubble finally bursts.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author holds no investment position in the above-mentioned securities.
Last modified: September 23, 2020 2:24 PM