Asset managers make difficult calls every day. But how they go about making those decisions obviously varies depending on the circumstance. It is important to consider both quantitative as well as qualitative analysis when looking at a security.
A nice illustration of this is Tesla (NASDAQ:TSLA), which is in the news again this week after ramping up more than 15 percent in trading on Tuesday, when the company, propelled by solid vehicle delivery numbers, reported a surprisingly strong 4Q.
One of the most talked about and debated stocks of 2013, Tesla's rapid rise and subsequent partial sell-off has been well documented in investment circles and beyond. It hovered near $30 per share last January before exploding and flirting with $200-mark in September. And though it's well off those highs, many investors still feel that Tesla is remarkably overvalued - especially relative to other car companies.
But that's where many get it wrong. It could easily be argued that Tesla is much more a tech firm than a car company, as it has far more in common with Apple (NASDAQ:AAPL) than with Ford (NYSE:F). And looking at it that way - which is entirely fair - the valuations are pretty reasonable, almost cheap in fact.
Twitter (NYSE:TWTR) is currently trading at nearly 30 times revenue, according to a recent analysis by Bloomberg. By comparison, Tesla trades at about five times expected 2014 revenues. And though that is an extreme example given that market analysts are almost universally skeptical of Twitter's current valuations, Tesla also compares favorably to other tech companies, such as Apple, Facebook (NASDAQ:FB) and LinkedIn (NYSE:LNKD).
But beyond price comparisons and quantitative metrics, there are other more qualitative reasons to like Tesla in the near term. Those include:
- Very little legitimate competition in the high-end electric car market;
- A favorable tax regimen in domestic and international markets;
- It compares favorably to ultra-luxury sports cars but at a cheaper price;
- A management team that has demonstrated the ability to execute the business plan;
- And despite recent negative publicity associated with in-car battery fires, the brand continues to have strong awareness in the marketplace.
Tesla could be on the precipice of another one of its hot streaks. Investors should do their own research when evaluating a security and consider the subjective nature of quantitative analysis as well as the importance of qualitative analysis.