Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Tesla Inc (TSLA): Is It Doomed to the Same Fate As Radio Stocks?

Vilas Capital is probably no stranger to Tesla Inc (NASDAQ:TSLA) investors, as the fund has been an outspoken critic of Tesla in the past, calling it “an over-hyped, lousy company” in an April 5 investment thesis on the stock, and one that is “destined to go bankrupt”.

It kept up the offensive on the company in its latest quarterly letter to investors, which was released on April 26, but this time expanded it to include the entirety of the green energy industry, which it believes is one of several industries that are currently experiencing a bubble (the others being cloud computing companies, social media companies, internet retailers, and video streaming providers). We’ll look at some of the fund’s latest comments in this article.

At Insider Monkey, we track over 700 of the most successful hedge funds ever in our database and identify only their best stock picks. Hedge funds are like many other companies in that they bundle products (in this case, stock picks) together and sell them to customers (investors) as a package deal. That means you get their 73rd-best pick along with their best pick, and who wants to pay exorbitant fees for a fund’s 73rd-best idea when you could instead invest in only their best ideas? We are currently offering a 14-day money-back guarantee on our premium newsletters, which include detailed breakdowns of hedge funds’ best performing picks.

In its quarterly letter, Vilas Capital CEO John Thompson relayed three recent encounters he had with random strangers, all of whom were forthright in their firm commitment in Tesla Inc (NASDAQ:TSLA)’s inevitable domination, despite none of them having a background in finance. One even expressed that Tesla “had” to be a great stock for the next decade.

Thompson described this phenomenon as a form of bubble where investors have lost any fear and are more afraid of missing out on the next big thing than on using a rational level of judgment to understand a company and stock’s true potential. Tesla is undoubtedly one of the most glamorous ‘story’ stocks out there, and all of these strangers had clearly bought into that story hook, line, and sinker.

Yet as Thompson explained, even if electric cars are indeed the future, as one of those strangers stated to justify their belief in the company, that in and of itself says nothing about whether Tesla’s stock is overvalued. Thompson expressed how that same kind of flawed thinking proved disastrous for investors of radio stocks, which reached extreme valuations back in their time that simply didn’t align with reality. Even though the radio did indeed become a commercial success and a ubiquitous item in American homes, those stocks still couldn’t match the extreme expectations that had been placed on them by investors.

While some of the individual companies in the aforementioned bubble sectors may indeed thrive, Thompson believes that collectively, they are grossly overvalued and have no chance of success collectively, as the companies that Vilas Capital is shorting (including Tesla) have a trailing P/E of nearly 300x on a weighted average basis.

Of course, it’s not only financial ignoramuses that believe Tesla Inc (NASDAQ:TSLA) will be successful, as there are many savvy financial minds who do believe in the company and its story (though hedge funds have been underweight Tesla for quite awhile). Vilas Capital though is not one of them, having predicted in its investment thesis that the company’s odds of bankruptcy if it remains a standalone company stand at over 90%; a bankruptcy that would be gloomily discussed over many a radio and in many a Tesla vehicle.

Disclosure: None

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.