Q: Dear Moneyweb, over the past five years I have enjoyed some solid success buying local technology companies like EOH and AdaptIT but have found the local technology scene to be fairly limiting in terms of options. I’m drawn to the Elon Musk story and specifically Tesla Motor Corporation as an investment but it is obviously a riskier offshore bet. Your thoughts?
A: As a financial media house, we are not in a position to offer financial advice and would recommend that you talk to your stockbroker before making any investments.
Having said that, both EOH and AdaptIT have been fantastic growth stories with EOH having done 1200% over five years and AdaptIT doing more than 2000% over the same period. This would suggest that you have some appetite for risk and have some understanding of the technology sector.
Tesla is an interesting business as it is both a disruptor of the traditional motor vehicle sector and is also a technology play and the industry is divided on how to value the business. For this reason you have a business trading on a price to earnings (PE) multiple of nearly 250 times earnings and a share price which has moved around quite a lot having traded between $177 and $291 over the last 52 weeks.
Before jumping into Tesla, you might want to revisit this interview with Adrian Saville
from Cannon Asset Managers who made the point that investors appear to be over-paying for Tesla and ignoring BMW which was trading on a 10 times earnings multiple while enjoying both an established brand. BMW now trades on a PE multiple of 11.9 times and is making inroads in the hybrid and electric car space but is certainly not afforded the same multiple as Tesla. For good measure BMW also throws in a dividend of 2.5%.
A second issue to consider is that while Tesla and Elon Musk have stolen the headlines for innovation in the sector, they are not the only ones getting involved in it. Richard Branson from Virgin
, Apple and Google are all rolling out initiatives here.
These points are further highlighted in this report
by Alcuin Asset Management which talks about how two non-traditional vehicle players are making big strides in the Chinese electric car market. Leshi and Kandi are not names familiar to Western investors but some view the Leshi offering as being technologically more advanced than Tesla and it comes at a cheaper price. Kandi is making big strides in the budget market as well and importantly these are brands recognised by Chinese consumers.
According to the analyst consensus forecast on FT.com
, analysts remain very bullish on Tesla in the near-term
. The consensus view is that the stock will outperform the market and the median 12-month price target of the analysts polled is $280. With the share around $200, this suggests there is a fair amount of upside if these analysts are on target.
The sector is clearly competitive and it will be fascinating to see how it plays out over the next few years.
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