Here’s a curve ball. What if, in the world of excellent businesses, past performance was often an excellent indicator of future performance. That’s at least how the market seems to feel about LinkedIn Corp (NYSE:LNKD) and Tesla Motors Inc (NASDAQ:TSLA), two businesses that are clearly firing on all cylinders. As if these stocks weren’t already expensive enough, they’ve crushed the market’s returns over the last 12 months, leaving both stocks trading at astronomic valuations. Let’s put the market’s expectations to the test, and take a look at just how powerful some of these growth drivers really are.
Tesla Motors Inc (NASDAQ:TSLA)
Investors who filter investments with valuation metrics, such as the price-to-earnings ratio and price-to-sales ratio, will find that their analyses won’t last very long on Tesla. The metrics just don’t make sense: a forward P/E ratio of 115, are you kidding? But it’s just as difficult to wrap your mind around Tesla Motors Inc (NASDAQ:TSLA)’s sales growth of 83% from the fourth quarter of 2012 to the first quarter of 2013.
Though Tesla may have already snapped up a meaningful share of the luxury car market, the company is just getting revved up. If CEO Elon Musk’s timetable of three to four years for a $30,000 electric vehicle is correct, then he thinks that Tesla Motors Inc (NASDAQ:TSLA)’s annual sales may soon increase from about 20,000 vehicles per year to several hundred thousand per year.
While the potential for mass acceptance of an affordable car is Tesla Motors Inc (NASDAQ:TSLA)’s main growth driver, the company relies on a few other strengths worth noting.
As the company continues to streamline operations and achieve greater scale, profitability could improve substantially. From December to March the company was able to reduce the time to build a car by almost 40%, and Tesla CFO Deepak Ahuja said in the first quarter earnings call that he thinks that “there’s clearly room to go further, and there are a lot of activities in our manufacturing organization that are continuing in that direction.”
Also, Tesla is currently only sold in North America. The company believes that when it does begin to deliver vehicles outside of the United States, there could be significant upside potential.
LinkedIn Corp (NYSE:LNKD)
What happens when you combine a powerful network effect, colossal growth, and massive market opportunity? You get an opportunity of a lifetime. To grasp the scale of the potential in this stock, consider a few numbers.