Tesla’s Entry into the S&P 500
In December 2020, Tesla’s stock made its way into the S&P 500 at a split-adjusted price of approximately $232 per share. As of the latest trading session, Tesla stock has reached $244.14 per share, marking a 5% increase from the initial inclusion level. This significant growth reflects the market’s recognition of Tesla’s disruptive presence and its potential for further expansion.
The Influence of Tesla’s Rally in 2020
One notable aspect is the blistering hot rally Tesla experienced throughout 2020. With shares soaring over 740% during that year, it became evident that Tesla was not only generating consistent profits but also enjoying immense success with its Model Y. This extraordinary performance played a pivotal role in Tesla’s inclusion in the S&P 500.
The Forward-Looking Nature of the Stock Market
While profitability metrics are one of the criteria for S&P index inclusion, it is essential to acknowledge that the stock market operates with a forward-looking mindset. Therefore, even before Tesla joined the S&P 500, the market had already accounted for the positive news surrounding Tesla’s profitability. This demonstrates the market’s ability to anticipate and accurately value a company’s potential growth.
The Market’s Validation of Tesla’s Performance
Lastly, it is crucial to recognize that Tesla’s consistent profitability and ongoing expansion have been key factors in the market’s validation of the company’s value. As DataTrek co-founder Nicholas Colas noted, Tesla’s inclusion in the S&P 500 reflects the market’s acknowledgment of the company’s strong financial standing and its continuous trajectory towards success.
In conclusion, Tesla’s entry into the S&P 500 serves as a testament to the company’s disruptive technology and its substantial impact on the stock market. The market’s forward-looking approach and acknowledgment of Tesla’s profitability and growth further showcase the accurate valuation of the company’s performance. As Tesla continues to expand, it will be exciting to observe its future influence on index-based investing.
Tesla: A Disruptive Innovator in the Stock Market
Tesla, a prominent player in the electric vehicle (EV) industry, has been making waves in the stock market. Its stock price has oscillated between approximately $410 and $110 since its inclusion. The midpoint of this range, at $260 per share, is not far off from its current trading value. This noteworthy performance has caught the attention of experts.
However, the nature of disruptive innovation suggests that Tesla’s future in the S&P 500 could be either significantly larger or considerably smaller over the next five to ten years. The company faces growing competition from other EV manufacturers, which could potentially erode its market share. On the other hand, if Tesla can successfully achieve its ambitious goal of autonomous driving on a large scale, its value will undoubtedly surge beyond its current standing.
Meanwhile, Apartment Investment, unlike Tesla, is not a disruptive company. It primarily focuses on the ownership and management of apartment properties. In 2020, its shares experienced a dip due to the impact of the pandemic but have since recovered alongside the broader Real Estate Investment Trusts (REITs) market. However, these recovery efforts are not particularly impressive, as the stock still lags by 3% in performance this year.
When it comes to valuation, Apartment Investment trades at around 23 times estimated 2024 funds from operations (FFO), a metric that can be equated to earnings per share. In contrast, Tesla boasts a valuation of over 60 times estimated 2024 earnings. Higher valuations often indicate increased volatility, attracting greater trading activity and interest from diverse investor groups.
Drawing historical comparisons, one can observe that Tesla’s influence on the investing public is not unprecedented. Back in 1956, Ford Motor captivated investors, resulting in over 200 investment banks participating in its initial public offering (IPO). The strong demand for Ford’s stock led to its inclusion in the S&P 500 upon its launch in March 1957, where it has remained ever since. Since going public, Ford’s shares have experienced a fourfold increase, excluding dividends. The question of whether Tesla can match or surpass these remarkable results remains open, waiting for time to reveal the answer.