For a while now, it’s seemed like nothing could stop Tesla (NASDAQ: TSLA) shares from rising. It’s pretty much been a stock market darling since it listed via an initial public offering (IPO) back in 2010. Even today, it’s still widely held by large institutional investors, including Cathie Wood at Ark Invest.
But just how much would I have earned if I was lucky enough to have bought the shares at the IPO? And most importantly, should I buy today?
Buying Tesla shares at the IPO
Tesla became a public company on 29 June 2010 at a share price of $17. However, due to Tesla’s stock split, the split-adjusted IPO share price is $3.40. Fast-forward to now, and the stock price is a much bigger $860. This results in a huge return of 25,200%!
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I’m a UK-based investor though, with a sterling-valued portfolio. So, taking into account the currency impact, my £1,000 investment in Tesla shares at IPO would be worth an incredible £280,651 today!
Now, it would have been very unlikely that I’d have bought the shares at IPO. Not to mention having to hold the stock for 12 years. The share price has been very volatile over this period, which would have made holding them a tough call when they fell in price.
Nevertheless, I could have bought and held Tesla shares soon after the IPO and the returns would have still been mega. But the important question now is: should I buy the shares today?
The investment case
I think the electric vehicle (EV) market is an exciting area for investors. There’s no doubt in my mind that demand for EVs will soar in the years ahead. Tesla should be able to capitalise on this significant sector tailwind, in my view.
The company’s fundamentals have been improving too. Indeed, Tesla was profitable in the previous two years.
Revenue grew by a huge 71% in the full year through 2021, and it’s expected to grow again in 2022 by an impressive 52%. This should translate into profit before tax growth of 165%. I can understand any investor getting excited about growth rates as high as these.
Demand for Tesla’s EVs shows no signs of reducing either. The company upped its deliveries of vehicles in 2021 to 936,172, an increase of 87% over 2020.
Should I buy Tesla shares?
Although Tesla shares have produced incredible returns so far, I think the company benefited hugely from first-mover advantage. It almost took the big incumbent automakers by surprise in just how popular EVs have been. However, I don’t see this first-mover advantage today. Companies such as Ford and others are investing heavily in their own EVs, so competition should intensify from here.
My lasting issue with Tesla shares has been the valuation. The company topped over $1trn in market value recently, although it has since fallen to $889bn. However, on a forward price-to-earnings basis, the shares still trade on a multiple of 87. The growth rate will have to remain very high to warrant this valuation.
So today, due to increasing competition and a valuation that leaves no room for error, I won’t be buying Tesla shares. I do wish I’d bought at the IPO though!
