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Tesla Roadster
Courtesy of Tesla
Technology outage guru and ARK Investment founder Cathie Wood says her company will release a new price target
Tesla
actions soon. No one knows exactly when, but when it arrives it will be a big problem for Tesla fans.
The question for investors is what price is likely for Tesla (ticker: TSLA).
Wood said recently De Barron Jack Hough states that the minimum expected return for a stock in his portfolio is 15% per annum for five years. “That doubles in five years,” Wood said.
This is what produces 15% annually for five years. There is a useful general rule on Wall Street known as the “72 rule.” The number 72 divided by the annual rate of return gives investors the years needed to have twice as much stock. It’s an approximation, but pretty good. At 15%, the rule of the equation of 72 gives 4.8 years. It actually takes about 4.96 years for an investment to double 15% a year. Still, not bad.
Wood told Hough that Tesla shares will do “substantially more” than the 15% hurdle rate in his lower case for Tesla shares at current levels. Any assumes exactly what it means substantially better and current levels. An annual return of 20% per year would produce a total return of approximately 150% in five years. This is substantially more than 100% earned 15% annually for five years.
In terms of levels, Tesla shares averaged about $ 650 in recent days. That could mean Wood Bear’s case is about $ 1,600 per share by 2026.
In this way, investors can be tested with base and current cases. Tesla shares have returned about 70% annually on average over the past five years. A repeat of this would place Tesla shares above $ 9,000 per share, making Tesla shares worth about $ 9 trillion. It may be too aggressive.
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Shares (AMZN) have returned approximately 40% annually on average over the past five years. If Tesla achieved this return, its shares would reach $ 3,500 by 2026. This would make Tesla shares worth about $ 3.5 trillion, which would be more than the rest of the car shares combined by a factor of two. Perhaps it is prudent to reduce that figure to $ 3,000.
Right in the middle of the egg and bull cases is a good guess for the base case. That generates $ 2,300 per share. At $ 2,300 in 2026, Tesla shares would have returned about 28% a year on average.
Wood’s target price for Tesla shares in five years could easily be north of $ 2,000. In 2018, Wood made a now legendary call that Tesla would reach $ 4,000. It was before the shares split 5 by 1. His call amounted to $ 800 per share, a level Tesla reached in late 2020.
Going from $ 800 to $ 2,000 more can seem like a chore. How can things be improved less than three years after the initial $ 800 call? Well, Tesla has made more money faster than expected, EV battery costs have continued to fall, and more carmakers have committed to a fully electric future.
Things are better for electric vehicles.
Tesla’s target price on Wall Street is Piper’s Alex Potter at $ 1,200 per share. Wall Street target prices are usually what analysts expect to rise over the next twelve months.
Tesla shares have affected speed a bit recently. Shares have fallen by around 15% so far this year, lagging behind the returns of the
S&P 500
i
Dow Jones industrial average.
It seems that the problem is not business execution. Fears of inflation and higher interest rates have affected stock prices of many high-growth stocks recently.
Tesla is a high-growth company. It expects to increase the volume by 50% annually on average for the foreseeable future.
Write to Al Root at [email protected]