Would investing in Amazon and Tesla actually be a mistake?

Article from The Motley Fool: https://finance.yahoo.com/news/2-stocks-could-lose...
With Amazon disrupting multiple industries and Tesla delivering promising technological advancements, many are buying their shares with extreme optimism. However, investing in these companies might actually make you lose money.

The key issue with Tesla is the fact that it's already trading as though it were a major car company. At $53 billion, its market capitalization is actually slightly ahead of Ford (NYSE: F). That's despite the fact that Ford's $150 billion in trailing sales and $4.4 billion in trailing earnings absolutely dwarfs Tesla's $11 billion in trailing sales $1.4 billion in trailing losses.

The past has been wonderful for Amazon.com investors, but for current investors, there's a lot of risk priced into its stock. Consider that from a revenue perspective Amazon.com's $161 billion is around a third of fellow retail titan Wal-Mart (NYSE: WMT)'s $495 billion, yet Wal-Mart's market cap is around half of Amazon.com's. The story is similar on an earnings front, too. Over the past four quarters, Amazon.com has earned around $1.9 billion, which is small compared with Walmart's $11.4 billion.

Looking at these numbers, the article does make a point that their shares are priced way higher than their own competitors, who are larger in scale and more profitable. What are your thoughts? Do you think investing in these companies is a good idea?

Comments (12)

Jan 23, 2018

Depends on your term of investment and your view of certain variables like growth.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

    • 1
Jan 23, 2018

I'm planning on investing in Amazon myself and putting an automatic stop loss at ~10%. Limit the downside. On the other hand, EV's only make up 1% of the the vehicle market. I just don't get investors craze over Tesla.

Jan 23, 2018
TheDebtStar:

I'm planning on investing in Amazon myself and putting an automatic stop loss at ~10%. Limit the downside. On the other hand, EV's only make up 1% of the the vehicle market. I just don't get investors craze over Tesla.

Because in 20 years EVs will make up 90% of vehicles.

Jan 23, 2018

Yes, some aggressive estimates say so. XOM says EV's will be just 10% of the market. Some estimates have it closer to 30%. Even if you're right, whose to say much of that growth will be by Tesla when other companies are getting in on the market such as BMW and Volvo. Tesla's priced as if they're already selling millions of cars a year.

Jan 23, 2018

You make a good point -- we can't assume Tesla will be the leader (or only leader) in the market in the future.

Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

Best Response
Jan 24, 2018

If you listen to Buffett, it's similar to when cars first arrived. There ~3,000 car companies on the market, and it became 3 companies over time. Betting on Ford, GM or Toyota at the beginning was all luck.

History wise, the first to market or the leader doesn't always win. At one point, Yahoo was the leader and Google was the underdog (among a lot of other search engines); KMART was the leader and Wal-Mart was the underdog; Myspace over FB.

Then it flipped; happens all the time.

    • 3
Jan 23, 2018
ironman32:

If you listen to Buffett, it's similar to when cars first arrived. There ~3,000 car companies on the market, and it became 3 companies over time. Betting on Ford, GM or Toyota at the beginning was all luck.

History wise, the first to market or the leader doesn't always win. At one point, Yahoo was the leader and Google was the underdog (among a lot of other search engines); KMART was the leader and Wal-Mart was the underdog; Myspace over FB.

Then it flipped; happens all the time.

What you're saying is objectively correct, yet much of investing is about timing. The Tesla detractors 3 or 4 years ago weren't "wrong" in their objections, but they've also missed out on a lot of wealth creation, too.

Jan 24, 2018

Agreed. It's all about time horizon though. If five years ago you put money in Telsa and held to today you would have made money. Going forward it's tough to say.

Point is don't buy TSLA and go away.

Second point is yes, you can make money timing the market. But most people can't do that consistently.

Jan 23, 2018

My larger point is, I just look at Tesla stock the way one might look at cryptocurrency or fine art--you can't think in terms of PE ratios or compare its price to competitors within the industry. TSLA is a pop culture phenomenon with a once-in-a-generation CEO (similar to Steve Jobs), and commentary on its irrational pricing are not particularly useful when analyzing the investment decision--at least not today.

Jan 24, 2018

You are correct in that you can't investment strictly on the fundamentals, because if you did you would be missing out on a lot of opportunities, including Netflix or Google.

On the other hand, if you completely ignore the fundamentals then you're not really investing, its effectively gambling at that point.

Jan 23, 2018
TheDebtStar:

Yes, some aggressive estimates say so. XOM says EV's will be just 10% of the market. Some estimates have it closer to 30%. Even if you're right, whose to say much of that growth will be by Tesla when other companies are getting in on the market such as BMW and Volvo. Tesla's priced as if they're already selling millions of cars a year.

There are threads on this very forum from 2013/2014 that make the same case you're making about Tesla, and yet Tesla stock pushes on. If cryptocurrency--which has zero intrinsic value and no present use--can be worth $250 billion then Tesla can be priced at anything people are willing to pay for it. Tesla's "goodwill" is worth so much more than Ford or GM's, and so long as Elon Musk is CEO then I suspect the stock price will maintain its relative strength. To me the biggest risk as a Tesla investor is "cult of personality" risk. If Musk dies in a car wreck or drops dead from a heart attack then I could see the stock collapse permanently. But Musk's presense will keep the price up.

As far as EVs go, I don't see any way that EVs don't completely dominate the market in 2 decades. The entire autnomous vehicle platform is predicated upon electric vehicles (for reasons relating to maintenance and corporate ownership of the vehicle) and the EU and China are basically trying to ban the ICE. In the U.S., you'll probably see California ban ICE sales in the next decade, which will pretty much turn the U.S. market inexorably toward EVs.

Caveat: I own no Tesla stock--I own the "total market." Also, I drive a gas-guzzling ICE vehicle.

Jan 24, 2018