For investors with a massive appetite for risky shares, there is no roller-coaster ride wilder than Tesla (NASDAQ: TSLA) stock. Five years ago, Tesla stock closed at $53.85 on 10 February 2017. At the end of 2019, the shares closed at $83.67. That’s a return of more than half (+55.4%) in under three years — not bad, but hardly earth-shattering. However, Tesla became the ultimate meme stock in 2020-22, with millions of retail investors leaping aboard Elon Musk’s high-tech bandwagon.
Tesla stock exploded in 2020-21
During 2020’s Covid-19 crisis, Tesla stock collapsed to a low of $70.10 on 18 March 2020, before closing at $72.24. By the end of 2020, the shares had exploded, rising tenfold to peak at $718.72 on 31 December. TSLA closed 2020 at $705.67, but was lifted to even greater heights in 2021. At its 2021 low on 5 March, Tesla stock slumped to $539.49, before closing at $597.95. The shares then skyrocketed again, peaking at an all-time high of $1,243.49 on 4 November 2021.
Tesla collapses yet again
Since early November, Tesla stock has dived, soared, and plunged again. Just over a month ago, the shares closed at $1,199.78 on 3 February. A week ago, they dropped to their 2022 low of $792.01 on Monday, 28 January. As I write, TSLA trades at $919.94. That’s a collapse of almost $280 in less than four weeks. Is it just me, or is this the craziest price action ever by an S&P 500 stock?
Tesla has become a market monster
So we know that Tesla stock is massively — even crazily — volatile. In fact, the stock has moved by 10%+ on 49 out of 529 trading days in 2020-22. What’s more, on 13 to 20 March 2020, the stock moved by between 11.9% and 26.1% every single day. What causes such massive intra-day moves in the Tesla share price? It’s not merely down to its popularity as one of the world’s most favoured stocks.
According to Robin Wigglesworth of the Financial Times, Tesla stock is being hurled about by frenzied options trading. Last November, Robin wrote that the nominal daily trading value of Tesla options had been $241bn in recent weeks. Stock options trading for Amazon was $138bn a day and for the other 498 members of the S&P 500 combined, it was $112bn a day. In other words, trading in Tesla options is routinely half of all single-stock options trading for the whole S&P 500. On some days, trading in Tesla options is six times as much as the rest of the S&P 500 combined. Holy moly!
For Tesla stock, fundamentals don’t matter
At $919.94 a share, Tesla’s current market value is $931.9bn — about $300bn below its November peak. Tesla trades on a price-to-earnings ratio of 189.8 and an earnings yield below 0.53%. With Tesla stock down almost a quarter (-23.3%) since its 3 January high, some investors will back it to soar once more. But not me. To me, Tesla’s valuation has become completely detached from its underlying business. As an old-school value investor, I think Tesla stock is far too risky and volatile for my blood.
However, growth investors and traders may take the opposing view. Some believe Tesla’s destiny is to become the world’s #1 carmaker. That might indeed happen. Meanwhile, Tesla made under 1.4% of the world’s car output in 2021. Thus, it has a long, long way to go. With every car made by Tesla being valued at almost $1m, this sure looks like a bubble stock to me. But my opinions don’t matter, nor do the company’s fundamentals. Only Tesla’s options trading matters today!