September 29, 2013

Tesla: What Would Peter Lynch Say?

By EconMatters

Our post last night highlighting our view and what BofA thinks of Tesla (Nasdaq: TSLA) seems to have stirred up a fire storm of reader comments at Seeking Alpha (in case you missed our post, catch it here).  Then we thought it'd be interesting to see how Tesla would be valued via this Peter Lynch Chart below from Guru Focus.

Peter Lynch was the fund manager for the Magellan Fund of Fidelity Investments from 1977 to 1990. Under his management, Magellan's asset went from $18 million in 1977 to $14 billion in 1990 averaging a 29.2% annual return.

In his book, "One Up on Wall Street", Lynch detailed some techniques he used to find winning stocks:
“A quick way to tell if a stock is overpriced is to compare the price line to the earnings line. If you bought familiar growth companies.....when the stock price fell well below the earnings line, and sold them when the stock price rose dramatically above it, the changes are you’d do pretty well.”   
Peter Lynch Fair Value is calculated based on Lynch’s famous rule of thumb: He is willing to buy a growth company at a P/E multiple that is equal to its growth rate.  Since Tesla's "beat expectation" earnings are still negative, the Peter Lynch Fair Value thus is a whopping -$31.5.

Ok, 'nuff said, no wonder institution investors are cashing out.    


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