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Matthias Knab, Opalesque: From Bradford Cornell, California Institute of Technology:
In the Fall of 2014, Aswath Damodaran and I published an article in the Journal of Portfolio Management that analyzed the run-up in Tesla stock from $36.62 on March 22, 2013 to $253.00 on February 26, 2014. In the article, Cornell and Damodaran (2014), we argued that the almost sevenfold increase in price could not be explained by fundamentals alone. As part of that study, we conducted a discounted cash flow (DCF) analysis to estimate the fundamental value of Tesla. Using aggressive assumptions, including a period of sustained growth in revenue of 70% and a corresponding dramatic increase in operating profitability, the DCF model produced a value for Tesla of $100.35 per share – only about 40% of the then market price. In this paper, I examine the performance of Tesla since the publication of the original article and discuss the implications of the subsequent performance for the valuation of Tesla.
…With respect to Tesla, the interesting question is whether there is a point at which the arrival of an additional quanta of bad news will lead to a sudden revision of beliefs regarding the company’s growth options. It is possible, furthermore, that such a revision will be the result in an information cascade of the type described by Welch, Bikhchandani and Hirshleifer (1992).
If this happens, as the Cornell and Damodaran DCF model suggests it eventually will, the collapse of the stock...................... To view our full article Click here
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