Tesla’s lacklustre three-year return masks a highly volatile run. — Bloomberg
NEW YORK: Exactly three years ago, Tesla Inc finally started trading on the S&P 500 Index. Since then, the company’s stockholders have been on a wild ride that’s left them wondering if they should’ve just put their money in the broad equities benchmark.
Tesla shares closed around US$232 on Dec 18, 2020, the session before the company joined the S&P 500. Today they’re about US$247, a 6.7% increase based on closing prices.
Meanwhile, the S&P 500 has climbed roughly 27%, led by mega-cap technology stocks such as Microsoft Corp, Apple Inc and Nvidia Corp. Tesla, which has the seventh-largest weighting in the index, is among the bottom half of S&P performers over that time.
“Tesla’s valuation was way overdone when it went into the S&P, so it is no wonder the shares are underperforming and will likely do so for the next couple of years,” Craig Irwin, an analyst at Roth Capital Partners, said in an interview.
“Trading the volatility is the right strategy to make money in the stock currently.”
Indeed, Tesla’s lacklustre three-year return masks a highly volatile run.
At one point, the stock was up nearly 80% from its price right before joining the S&P, while at another it was less than half that value.
Looking ahead, conditions could get even more challenging for Tesla as demand for electric vehicles (EVs) cools.
Even the company’s dominant position in the sector, which makes it perhaps the only viable bet for investors in the industry, may not be enough to help its stock price in the coming years.
Still, the euphoric rally that preceded Tesla’s entry into the S&P 500 makes the stock’s weak showing palatable to some investors.
The shares rose a staggering 731% in 2020 through Dec 18 as expectations that the company would soon gain blue-chip status lured both institutional and retail investors.
Getting a spot in the S&P meant many fund managers who were wary of the volatility, the company’s flamboyant and unpredictable chief executive officer, Elon Musk, and the nascent EV industry had to take notice.
And for funds tracking the benchmark, portfolio managers were required to buy Tesla shares to reflect the index’s new makeup.
“Passive index investors jumping in after the run-up in 2020 have not had a great return considering the volatility,” said Jerry Braakman, chief investment officer at First American Trust, which held about 16,000 Tesla shares as of Sept 30.
But “change the starting point just a little and it is obvious how much value can be created by holding Tesla”. — Bloomberg
