Over the long term, Tesla (NASDAQ: TSLA) has been a phenomenal stock market performer. Sure, Tesla stock has had its up and downs. But someone who bought it when it listed back in June 2010 would now be sitting on a gain of 30,867%. That is the stuff of investor dreams.
For me though, it is just a dream, as I did not participate in Tesla’s share sale 16 years ago.
Fast forward to this June though, and we have seen another company set up by Tesla’s boss hitting the market: Space Exploration Technologies (NASDAQ: SPCX), more commonly known as SpaceX.
So should I scoop up some SpaceX stock hoping that it could end up providing the sort of return I missed out on by not owning Tesla over the past 16 years?
A common investor mistake
Put like that, the answer is a clear no – because the logic is flawed. Each investment opportunity needs to be considered on its own merits (and demerits). Just trying to replicate something already in the past makes no sense.
Will Spain win the World Cup this summer? Maybe. But whether they do or not, it will not be because Spain won it back in 2010.
SpaceX and Tesla have some similarities
The success of Tesla stock was not inevitable. This was an upstart company in an industry that was still relatively small and had a lot to prove. The capital expenditure traditionally associated with making cars is offputting for many businesses.
Tesla also added further challenges for itself, such as setting up its own sales network rather than going through existing dealerships like most carmakers do.
In some ways, SpaceX has some of the same attributes. It has an innovative, disruptive approach to a rapidly growing industry.
Demand for rocket launches is set to grow, and SpaceX benefits from fewer big rivals and even higher barriers to entry than Tesla did in its early years.
Like Tesla in its early years as a listed company, SpaceX has been growing revenues fast. It is unprofitable, but so was Tesla for many years as it grew.
Here’s a big difference between now and then
When Tesla stock hit the market, there was a lot of coverage. Expectations were high in some quarters. But that was nothing like what we saw this month when SpaceX was listed and instantly became one of the world’s most valuable listed companies. Its market capitalisation at points this week has been well more than double Tesla’s.
That seems irrational to me. Tesla’s revenues are over fivefold SpaceX’s. Tesla is profitable while SpaceX is loss-making.
Tesla faces ongoing challenges such as growing competition from Chinese rivals eating into profit margins. But it also has strengths, such as a large user base and proprietary technology.
To me though, Tesla stock looks overvalued and I have no plans to buy.
Like Tesla, initial hype combined with rapid business growth could propel SpaceX stock upwards. But with a business model as yet unproven to make money and a sky-high valuation, it is not attractive to me.
I will not be buying either stock, but looking for more attractively priced growth opportunities elsewhere.
Should you invest £5,000 in Tesla right now?
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Christopher Ruane does not hold any positions in the companies mentioned.
