Why I Am Not Buying Tesla Motors Inc (TSLA): Hedge Fund Manager

Tesla Motors Inc (NASDAQ:TSLA) has certainly become the darling of the auto industry, the alternative-fuel industry and even the tech industry with its innovations. And with being such a darling in so many areas, CEO Elon Musk has guided the company’s stock into the stratosphere in 2013, as the stock at one point was above $150 a share Thursday after the company reported better-than-expected earnings Wednesday night in its quarterly report.

But is the stock finally overvalued? Or is this like what Reed Hastings did with Netflix, Inc. (NASDAQ:NFLX) or Jeff Bezos of Amazon.com, Inc. (NASDAQ:AMZN); the current run is just the start of a climb to the “correct” valuation?

Well, it seems interesting that we would dare mention Amazon. There is a fund manager who went on record recently to make a comparison of Tesla Motors Inc (NASDAQ:TSLA) and the e-commerce giant.

Tesla Motors Inc (NASDAQ:TSLA): Words from a Bear

Steven Kiel, fund manager of Arquitos Capital Management in Annandale, Va., sent out a note to investors recently, and Kiel gave his assessment of Tesla. He basically stated that now is not the time to be buying what Musk is selling.

Arquitos Capital Management is a hedge fund, by the way, with a minimum initial investment of $100,000 to participate.

In the investor’s note, Kiel wrote, “As much as I respect the dynamic nature of companies like Tesla and Amazon, you won’t find me making up a reason to “invest” in them at their current prices. When the crowds are exuberant, the market price of companies like that can go to the moon. Those investors will then be crushed when the public mood overshoots to gloom and despair, which it will. Amazon is certainly a better company than, say, Winland Electronics. It is not a safer investment.”

Kiel wasn’t done with his skepticism of Tesla, especially at the current level of valuation. “In good times, investors are often drawn to companies with rich valuations who have dynamic leaders and extreme growth prospects.

“The stocks of those companies,” Kiel said, “like Tesla for example, can quickly fly. Tesla’s stock has gone up more than 350% this year. The problem is when sentiment turns. Amazon traded above $90 in 1999, and less than two years later it was below $7.”

The Tesla vs. Amazon.com Comparison

Kiel sees some similarities with Tesla Motors Inc (NASDAQ:TSLA) and its current rise with the early days of Amazon.com, Inc. (NASDAQ:AMZN), when that stock had violent mood swings, until investors and analysts could generate a more accurate valuation.

“I love Elon Musk and I think Tesla is an exciting company,” the hedge fund manager stated, “but if you were to buy it today the only way you could make money over the long term is if the company has incredible operational performance for a long time.

“That’s possible. However, you could lose a lot of money if their operational performance is just good, and not spectacular. You could lose a lot of money if nothing changes in their operations, but investor sentiment changes. And, you could really lose a lot of money if their operational performance worsens because both sentiment and performance will decline.

“So you have one way to make money, and three ways to potentially lose a lot of money. I don’t see the attraction other than simply hope, or wanting to tell your friends that you own Tesla stock.”

How do you see fund manager D.E. Shaw feeling about Tesla Motors Inc (NASDAQ:TSLA) after this run? Shaw doubled  his investment in Tesla stock in the March quarter of 2013 over what he owned in December of 2012.

Would you sell now, or ride it our longer because of the most recent earnings report? While you contemplate your answer for the comments section below, take a look at this video that shows how the Tesla Model S is made.

DISCLOSURE: None