When a stock skyrockets for reasons that are purely based on high hopes for the future that are completely unjustifiable by current and past performance, it is time to start getting fearful. Such is the case with Tesla Motors Inc (NASDAQ:TSLA), a company with stock that has nearly quadrupled since last October.
If you had the foresight to invest in this electric car maker then kudos for making a killing, but I highly advise you to get out now. You are much better off investing in an automobile manufacturer with a proven track record of success. Ford Motor Company (NYSE:F), for example, which just this past Father’s Day celebrated its 110th birthday. General Motors Company (NYSE:GM) is another option, and will be turning 105 this September. Compared to these time-tested titans, Tesla Motors Inc (NASDAQ:TSLA) is a toddler at the age of 10.
One quarter of profitability
A $12.2 billion dollar market cap makes Tesla Motors Inc (NASDAQ:TSLA) worth about one-fifth and one-third of Ford and General Motors, respectively. That strikes me as ludicrous seeing as how Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) both have hundreds of quarters of profitability under their belts, while Tesla has a grand total of one.
In the first quarter of 2013 Tesla Motors Inc (NASDAQ:TSLA) generated an awe inspiring $11.4 million dollars in pre-tax profits. During the same quarter, Ford Motor Company (NYSE:F)’s pre-tax profits were $2.3 billion while General Motors Company (NYSE:GM) pre-tax profits for the first quarter were nearly $1.6 billion.
Tesla Motors Inc (NASDAQ:TSLA)’s claim to fame is being the first company to mass produce an electric vehicle that is highway compatible. This is certainly cool. Vehicles running on pure electricity are undoubtedly better for the planet than ones running on fossil fuels. Until Tesla has a couple years of proven profitability under its belt, however, I regard the company as more speculation than investment.
Any chance of a dividend?
As investors, our returns come from two sources: dividends and capital gains. As a company still in its infancy that has yet to record any serious profits, Tesla Motors Inc (NASDAQ:TSLA)’s odds of paying a dividend anytime soon are slim to none.
General Motors Company (NYSE:GM) hasn’t paid a dividend since 2008, although CEO Dan Ackerson did mention earlier this month that the company’s finances were sound enough to consider reinstating the dividend. Don’t hold your breath, though, as General Motors Company (NYSE:GM) has more important financial matters it must attend to before it can reward shareholders with a dividend.
Meanwhile, Ford Motor Company (NYSE:F)’s dividend yield stands at a healthy 2.7%. Not a monster of a yield, but the payout ratio is only at 17% which means that there is plenty of room for growth.
The ratio of price to tangible book value is horrifying
70.19. That’s the price to tangible book value ratio of Tesla Motors right now, 70.19! Anyone who calls themselves a value investor ought to be appalled by such a high ratio. A core tenant of the Ben Graham school of value investing is to never pay much above book value. Tesla’s valuation compared to it’s tangible worth is out of the stratosphere, no the exosphere.