First, Tesla will need to rapidly expand its refueling network to support growth. Next, during these times of austerity, Tesla needs the government to maintain clean fuel tax credits to subsidize Tesla Motors Inc (NASDAQ:TSLA)’s cars purchase price. Finally, Tesla will need to overcome the mass market preference for hybrids versus electric vehicles. That’s a high order, but Tesla bulls may feel that Musk is up for the task.
But what about Tesla’s valuation? I haven’t heard a cogent argument why, given the business risks, Tesla is worth 25% of the value of General Motors.
Remember, current estimates indicate that the total global electric car market in 2025 will only be 10% of the overall car market. GM currently has 11.6% of the global car market. For me, the disconnect between Tesla Motors Inc (NASDAQ:TSLA)’s valuation and the anticipated market size is simply too large.
3D Systems: How Can it Grow Into Its Valuation?
Additive manufacturing (3D printing) is one of the most exciting long-term market advances of our generation. It involves laying down thin layers of material, layer by layer, until a manufactured item is fully formed. While 3D Systems Corporation (NYSE:DDD) printing is slow compared to current manufacturing processes, it provides an ideal solution for complex, low-yield products and parts.
According to Wohlers Associates the 3D printing market will reach $3.1 billion worldwide by 2016 and $5.2 billion by 2020. This is strong, but not market changing growth.
Currently 3D Systems Corporation (NYSE:DDD) is trading at a valuation of $3.9 billion, or 1.25 times the total estimated global market size for 3D printing for 2016!
In comparison, Apple Inc. (NASDAQ:AAPL)’s valuation of approximately $400 billion is less than a third of the estimated global smartphone market size of $1.6 trillion in 2018.
If Wohlers market size estimates hold true, common sense indicates that 3D Systems Corporation (NYSE:DDD)’s current valuation has exceeded rational expectations. Bullish investors can certainly argue that market size estimates are too conservative, and that unanticipated 3D printing innovations could lead to faster market growth. However, for me, “hoping for the unexpected”, as well as 3D Systems Corporation (NYSE:DDD)’ frothy valuation, makes the company too risky for a long-term position.
Foolish Bottom Line
Long-term investors need to keep their focus on companies that are well-positioned from a strategic and valuation standpoint. Both Tesla and 3D Systems Corporation (NYSE:DDD) are exciting companies in growth markets. However, the companies’ current valuations don’t seem to warrant the attention of a long-term investor.
Critics will likely point to the strong upward trends of these companies’s stock charts as reason enough to invest in them. And while some will certainly make money trading in and out of these stocks, the individual investor needs to be aware when it comes to short-term trading, the odds are always stacked against them.
Bill Shambllin owns shares of Apple. The Motley Fool recommends 3D Systems, Apple, and Tesla Motors (NASDAQ:TSLA) . The Motley Fool owns shares of 3D Systems, Apple, and Tesla Motors and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems. Bill is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Wall Street Loves The Short-Term: Tesla and 3D Systems originally appeared on Fool.com is written by Bill Shambllin.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
