The Tesla Run-Up: A Follow-Up with Investment Implications

Abstract

In the fall of 2014, Aswath Damodaran and I published an article in The Journal of Portfolio Management that analyzed the run-up in Tesla stock from $36.62 on March 22, 2013, to $253.00 on February 26, 2014. In the article, Cornell and Damodaran [2014], we argued that the almost sevenfold increase in price could not be explained by fundamentals alone. As part of that study, we conducted a discounted cash flow (DCF) analysis to estimate the fundamental value of Tesla. Using aggressive assumptions, including a period of sustained revenue growth of 70% and a corresponding dramatic increase in operating profitability, we found that the DCF model produced a value for Tesla of $100.35 per share—only about 40% of then-current market price. We concluded that the stock was significantly overvalued and attributed that overvaluation, at least in part, to investor sentiment.

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