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Should You Buy Tesla Stock After Trump’s Election Win?

Vaseline November 6, 2024

Tesla (TSLA) shares soared on the outcome of the 60th US presidential election, helped in no small part by CEO Elon Musk’s fervent support for Donald Trump, now the 45th and 47th men to win the White House.

Few things have a greater appeal to investors than the sight of rising prices, which begs the question: should you buy Tesla stock?

To answer this question, it helps to look around the physical environment. Are you reading these words at a desk with, say, six monitors showing changes in asset prices around the world in real time? Do these numbers fluctuate between the colors red and green?

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If the answer is no, then no, you should not buy Tesla stock based on the outcome of the election. After all, the idea is to buy low.

Additionally, retail investors who own diversified funds that track the S&P 500, the Nasdaq Composite, and the Nasdaq-100 likely already have ample exposure to TSLA. The electric vehicle maker’s market capitalization of more than $920 billion gives it ample weight in these benchmarks.

TSLA stock: The Street is weighing in

But let’s say you’re a stock picker. Is Tesla a bargain at current levels?

Certainly industry experts who follow the shares intensively should know this. The problem here is that Wall Street is deeply divided over the name.

Of the 52 analysts covering TSLA stock surveyed by S&P Global Market Intelligence, 12 rate the stock as Strong Buy, six say Buy, and 19 have the stock as Hold. Additionally, four call TSLA a sale and seven say it is a strong sale.

This amounts to a consensus recommendation from Hold. Meanwhile, the $222.96 average price target implicitly reflects Tesla stock disadvantage of more than 20% compared to the current level.

Part of the bear case for Tesla stock has always been valuation, but so far that hasn’t really worked out. The stock always looks expensive. And it has always been volatile. TSLA trades at 115 times forward earnings per share. It has a five-year beta of 2.3 and saw an all-time high drawdown of 73%.

And yet, despite these problems, Tesla shares have been a huge market beater over the longer term. It’s true that TSLA has significantly underperformed the S&P 500 over the past one- and three-year periods, but it has also delivered excellent outperformance beyond that. Heck, over the past five years, TSLA has beaten the broader market by about 50 percentage points on an annualized total return basis.

On the other hand, as every prospectus says, past performance is no guarantee of future returns.

If you were a Tesla bull before Tuesday night, don’t let the dream die. But adding exposure to Tesla stock when it’s in a knee-jerk trading action is generally not part of a healthy investing process. At least not if you’re not a professional.

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