Market Is Right About Tesla Motors Inc (TSLA)

Whenever you stumble on the phrase “Mr. Market,” you think of Ben Graham talking about how a stock is undervalued. But, these days, this isn’t the case when you see this phrase, especially whenever Tesla Motors Inc (NASDAQ:TSLA) is being spoken of somewhere in the mix.

Now people say Mr. Market is so dumb that it’s attributing an unworthy value to Tesla Motors Inc (NASDAQ:TSLA). Their arguments revolve round one singular fact – Tesla Motors Inc (NASDAQ:TSLA) hasn’t seen the sales to justify its share price. And all I can sense is that they want Mr. Market to wake up from his slumber and give Tesla Motors Inc (NASDAQ:TSLA) what they think is right. I, on the contrary, don’t share this opinion and I’ll show you why in this article.

I’d like to take you through the archives. Tesla Motors Inc (NASDAQ:TSLA)’s critics seem to fume each time a comparison is drawn between Apple Inc. (NASDAQ:AAPL) and Tesla Motors Inc (NASDAQ:TSLA). They don’t want to hear anything like Tesla is the next Apple Inc. (NASDAQ:AAPL). But either you like to hear it or not, Tesla’s current state is quite reminiscent of what Apple Inc. (NASDAQ:AAPL) experienced in late 1990s. And we all know that trends matter in investing.

Soon after Steve Jobs took over the reins at Apple in 1997, Apple stock began to do well again, rising to the region of $40 per share. I’d like to point out something here. Apple’s net sales were on a decline at that time, with 1995 being the last fiscal year it witnessed an increase in net sales. In addition, Apple reported a net loss in 1997, the year Jobs took over.

Mr. Market was probably dumb at that time to have allowed Apple’s price to soar amid these hiccups, too. So the rise in stock price Apple witnessed at that time was a result of forward-looking estimates and not what was attainable at that time, which is what happened to Tesla late last year and early this year.

To worsen it all, at least for critics, Apple’s share price rose to over $100 at the close of the decade. This rise to over $100 per share was a direct result of Apple’s newfound health/balance coupled with the fact that its net income grew by 92% in 1999. I’d like to point out again that its net sales in 1999 were just the fourth best in five years, which is only better than that of 1998. So Apple, like Tesla, hadn’t seen the sales to justify its share price.