David Whiston of Morningstar isn't confident in Tesla Inc TSLA's outlook and explained the bearish case against owning the stock ahead of the company's earnings report.
Speaking as a guest on "Bloomberg Daybreak: Americas," Whiston suggested the bulk of value assigned to the stock today is based on future performance, which makes it even more difficult to assign a value to the stock over a short-term period.
Related Link: Luxury Electronic Carmaker Tesla Gears Up To Report Q4 Results
As such, Tesla's stock valuation is essentially one "giant call option" on its CEO Elon Musk.
"It's immensely difficult to model out because so much of that value is going to be way down the road, even beyond a 10-year forecast period that we do in a DCF [discounted cash flow] model," Whiston explained. "It's a tricky balancing act between how much of the benefit of doubt do you give them about their potential versus how realistic do you want to be."
The analyst also pointed out his valuation model changed late last year to account for the amount of debt Tesla's now assuming as part of the Solar City merger.
Bottom line, investors need to decide if they "believe in Elon Musk" or not. Those that do can buy the stock and hold it for the long-term and ignore the near-term volatility. Those that aren't confident in Musk's vision or the electric car segment might consider avoiding the stock.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
