nasdaq 100
Tesla share price rose above the $2,000 for the first time last Friday. Investors seem to not care about the fact that at the current market price the company trades at more than a thousand times its earnings.
Moreover, the Tesla share price doubled in only a few months. It reached $1,000 for the first time in February this year – fast forward to August, and it reached above $2,000. Investors that bought the March dip below $400 have even higher returns.
But does the $2,000 price reflect the intrinsic value?
In August, Tesla announced a 1:5 split from September. The news is credited with creating the recent bullish break out of a pennant formation. The argument is that retailers will have more access to the company’s shares due to a much lower price. However, that argument does not stand as fractional shares investing makes it possible to own only a portion of a company’s stock.
The possible S&P500 inclusion is another thing that keeps investors biding for Tesla. If that comes to fruition, passive managers will alter their portfolios to mirror the new index by adding Tesla shares.
At this valuation, Tesla becomes the 12th largest company in the world. Thus, the chances of the index inclusion to happen are extremely high, especially that it meets the eligibility criteria since the Q2 2020 earnings.
But perhaps the FOMO (Fear of Missing Out) is the main driver for Tesla’s share price. With more and more bearish analysts capitulating, Tesla bulls dominate the price action.
At the current level, Tesla faces dynamic resistance at the upper edge of a rising channel. Bulls may want to wait for the price to correct to 50% of the channel before going long for new highs while having a stop-loss at the channel’s lower edge.
