Tesla Motors Inc (NASDAQ:TSLA) continues to prove its critics wrong, one milestone after another. Last year, the company delivered its all-electric Model S ahead of schedule, won Motor Trend’s 2013 Car of the Year, ramped up production, and launched a U.S. Supercharger Network. Tesla rode this momentum into 2013, and now expects to post its first profit when the company reports earnings on May 8. Tesla stock is up more than 50% year to date because of all the upbeat news. However, with Tesla’s stock trading around $50 a share, some investors worry that it’s too late to get in on the action.
Here are three reasons why Tesla stock should move higher from here.
1. Tesla is a disruptive force in the auto industry
Tesla Motors Inc (NASDAQ:TSLA) is a disruptive innovator that’s bent on forever changing not only the way we drive, but also the way we buy cars. Unlike traditional car manufacturers, such as Ford Motor Company (NYSE:F) or General Motors Company (NYSE:GM), Tesla doesn’t sell its cars through franchised dealerships. Instead, the company’s retail strategy relies on mall stores located in high foot-traffic areas.
Not surprisingly, pushing for change in an industry that’s operated the same way for more than 100 years hasn’t been easy for Tesla. Auto-dealer groups in states such as New York and Massachusetts brought lawsuits against Tesla, saying that it violated state franchise laws. Tesla fought back, and won.
As it stands, Tesla has won the right to operate its manufacturer-owned stores in more than eight U.S. states. Tesla stock should get a meaningful boost if the company can win over the state of Texas in the coming months.
2. The stock’s current valuation is deceiving
Additionally, many would-be Tesla investors argue that the stock is overvalued compared to other automakers, such as Ford Motor Company (NYSE:F) or General Motors Company (NYSE:GM). This isn’t without merit if you’re simply looking at the numbers. However, as an upstart growth stock, I’d be worried if Tesla’s valuation were comparable to these traditional auto companies.
It’s a mistake to value Tesla Motors Inc (NASDAQ:TSLA) using the short-term benchmarks reserved for established auto companies. Conversely, investors who are willing to take a long-term approach to valuing Tesla stock will have the most to gain when the naysayers buy in down the road — particularly, if Musk delivers on his promise of making Tesla the greatest automaker of the 21st century.
The lesson here is: Don’t judge a stock by its valuation alone. Finding winning investments is about more than numbers. It is equally important to understand the business behind those numbers. In Tesla’s case, I think it is one of the most misunderstood stocks on the Nasdaq. However, this will change in time as the company continues to exceed expectations, and that’s when longtime shareholders will be rewarded.
