In December 2017 Bitcoins were being traded at around $20k. That was an irrational price mainly for 2 reasons:
- Bitcoins are useless for paying because by design their price will always be too volatile.
- At high prices competition from other currencies kicks in.
Nevertheless there were many people believing Bitcoin would go to $100k. As with all bubbles those who did not sell lost money. The bubble was caused by people betting on the momentum and by the real believers. It is remarkable Bitcoin did not go down to zero yet and is still at around $8.5k today.
So could Tesla stay a bubble stock for a very long time? Well, it is already a bubble stock for a long time. Like with Bitcoin the bubble will end. The next question is whether it could stay strong for a while after the bubble bursts. I do not think so because there are many differences between Bitcoin and bubble stocks like Tesla:
- Bitcoin does not need to sell anything, so nobody is tracking quarterly revenue,
- Bitcoin does not have to promise anything to its investors,
- Bitcoin does not have a Twitter Sitter and won't need one ever,
- Bitcoin does not need to pay any bills,
- Bitcoin does not have any lenders,
- Bitcoin cannot go bankrupt,
- Bitcoin does not have less average cash than on its balance sheet (implied by received interest) and does not have mysterious accounts receivables or finished goods inventory,
- Bitcoin does not have solar assets that are probably worth much less than book value,
- Bitcoin does not need to file quarterly and annual reports,
- Bitcoin does not have an auditor that has to approve the annual reports,
- Bitcoin does not even have a balance sheet, profits/losses or cash flows, so shorts and the SEC cannot complain about financial reporting,
- Bitcoin does not have anything to do with self-driving cars that can crash and harm innocent people,
- Bitcoin does not have anything to do with cars that can spontaneously ignite or that can ignite after a crash,
- Bitcoin does not have anything to do with roofs with equipment increasing fire risk,
- Bitcoin does not have anything to do with cars with batteries that can stop working in the middle of nowhere, or any other time when you really need your car,
- Bitcoin does not have suppliers that can demand cash on delivery,
- Bitcoin does not have for billions of purchase obligations,
- Bitcoin does not have affiliates trying to fly to Mars,
- Bitcoin does not have anything to do with weed, or any other drugs,
- Bitcoin does not have whistle blowers,
- Bitcoin does not have unhappy customers because it does not have any customers,
- No, you can't sue Bitcoin, nobody has even tried it yet.
Tesla is a bubble stock. You might earn money trading it but such trading is not wise. The bubble can suddenly burst for many reasons, in particular because of lower sales during the next 2 quarters. So my take on Tesla is still: strong sell.
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Disclosure: I am/we are short TSLA.
Additional disclosure: Global Deep Value Stocks is a long only newsletter. I do not discuss stocks like Tesla in Global Deep Value Stocks.