Tesla stock price increased by 32.5% in July, is it a bubble about to burst?

It is 2020, the year of the Corona Virus, and the “Apocalypses” for all the traditional companies. The amount of cars sold has dropped by up to 80% in some countries. In general, people are not traveling this year. One can assume that it is hell for the car manufacturers, right? So how come that Tesla stock price is rising so much and it became the car company with the highest ever market cap? Does it make any sense, or is it a bubble?

Tesla stock price increased by 32.5%

Against all pessimism burst by the coronavirus pandemic that has badly affected the results of most companies in this 2020, Tesla just reported a great milestone.

At the end of last July 2020, the Palo Alto-based company reached its fourth consecutive quarter of profitability. Tesla (NASDAQ, TSLA) hopped to 32.5%, based on information provided by S&P Global Market Intelligence. This means it has arisen close to 250% year to date.

David Trainer, who is the CEO of New Constructs, an investment research company, puts Tesla stock as “the most dangerous stock of 2020.” He believes that the traditional automakers will soon catch up with their electric vehicles, and TSLA will go down as low as $300. Trainer thinks that Tesla can’t compete if the rest focus on EVs. 

Mike Jackson, the CEO of AutoNation, said, “The stock price is insane. The valuation is insane.” He is definitely not buying the hype around the stock too. He was pointing that Tesla’s results are thanks to the huge government support, and without it, the picture would be very different. 

So July is gone now, and we are in August. The price is still rising, and it is currently trading at 1,658.32 on NASDAQ. It looks like the investment market is totally disconnected from the reality outside our windows recently. Many are expecting the price to pass the 2000 mark and to grow even more. 

For me, this looks like a big bubble about to burst. It doesn’t mean that you still can’t invest and make good earning on your investment, but just be prepared. Don’t invert your retirement’s money on it. 

If you ask me, you can make a big buck if you are a risk-taker, and you want to play with some put options with strike day around the end of the year. 

Yes, betting against your favorite company is hard, but an artificially inflated price is not nice too. 

What’s next for Tesla?

Tesla will split the stock in a 5-to-1 ratio on the 21st of August. Each stock owner will receive 4 more, and the price will go down accordingly. This will make the stocks more affordable for retail investors. The announcement itself inflated the value with around 18%. 

We are expecting a presentation on the topic of batteries on the 15th of September. The company is well-known for its high-tech innovations, so a new, more efficient battery can easily boost the stock price. At least this is a good reason. 

Conclusion

If we look back on a year ago, the Tesla stock was around 250% less, and during the complete 2019, the price increased by more than 500%. These numbers are not typical for companies in the S&P 500. Even if you think it is a great company and you “love” the real-life iron man Elon Musk, be cautious investing in Tesla. It is a high risk, high return affair!

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