The electric car company that Wall Street doomed for failure did something that few people expected. It succeeded. That company is Tesla Motors (TSLA), and its award-winning Model S sedan is now a legitimate player in the auto world.
I alerted my subscribers to the opportunity in Tesla in February 2013 when shares traded at $38. I wrote: "Many investors are simply missing the boat on Tesla. They're too shortsighted and are unable to look out three to five years and understand just how Tesla can grow and transform the automotive world." Tesla's success with consumers is just one part of this story. The real shocker: Tesla's profitability.
Earlier this month, Tesla beat analyst estimates, pulling in a profit of $0.20 per share on revenues of $405 million. The real surprise here was the profit, since Wall Street expected the company to lose $0.19 per share. That's a 217% earnings surprise, and sent shares up nearly $20 in one day.
It was the second quarter in a row where Tesla handily beat EPS expectations. The 200% earnings surprise in March sent the stock from $55 to $87 in a few days. This financial outperformance propelled Tesla stock to unthinkable heights. Shares soared 357% in 2013, making it the single best-performing large stock.
Meanwhile, other analysts continue to slowly raise their share prices, but have targets far below the current price of $163. These same analysts offered up below-market targets every step of the way as this stock surged. They, too, have chased the stock higher, while never recommending it to their clients. Perhaps that's because the stock rose so far, so fast. Alternatively, it could be the ridiculously overvalued estimate of 93x next year's earnings that scares them away.
But I think Tesla offers one big lesson for investors. That lesson is never to sell your winners too early. A close friend of mine bought 1,000 shares of Tesla on my recommendation when the stock was at $35. After shares jumped to $50, he cashed out and walked away with a $15,000 gain in a few weeks. But what he gave up was the $127,000 in profits he would have earned had he simply held on to his shares.
In my real money service (the $100k Portfolio) I continue to own a sizable stake in Tesla. I sold off one-third of my position back in May after the stock rose to $103. But I knew then -- as I know now -- that high-growth stocks like Tesla can keep rising, defying logic and even the best valuation analysis.
I don't expect to cash out at the top with Tesla. But I intend to hold on to my shares until there is a real reason to cash out. After all, this stock was "overvalued" at $60, $90, and $120 per share. While I'll never buy an overvalued stock like Tesla or Netflix (NFLX), I love holding on to them when investors pile into these media-hyped growth stories. Tesla is a great company with a world-class product and very pricy shares.