These Risky Stocks Are More Overvalued Than Tesla
These no-moat, very high and extremely high uncertainty stocks are richly priced according to our price/fair value ratio.
Tesla (TSLA) is the biggest short in the U.S. stock market, according to a report released this week from S3 Partners. As Morningstar sector strategist Dave Whiston hasnoted, the electric car maker's cash burn and debt levels are finally getting attention. There are also questions about the firm's ability to hit its production goals. Apparently visionary Elon Musk is concerned, too: Media reports say he's sleeping on the factory floor these days.
According to Morningstar, Tesla is about 25% overvalued relative to our assessment of its fair value as of close on Thursday. The stock hasn't yet earned a moat and carries a very high uncertainty rating. (As a reminder, Morningstar's uncertainty rating represents the predictability of the company's future cash flows and therefore, the level of certainty we have in our fair value estimate of a given company. The lower the uncertainty, the narrower the potential range of outcomes for that company.) Given that uncertainty level, we'd suggest a significant margin of safety before investing in Tesla, a much larger margin than we'd suggest for, say, a low or even medium uncertainty stock.
Susan Dziubinski does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.