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Tesla Roadster
Courtesy Tesla
Technie disruption guru and founder of ARK Investment says Cathie Wood says her company will launch a new target price for
Tesla
stock soon. No one knows exactly when, but when it arrives, it will be a big deal for Tesla fans.
The question for investors is what is Tesla’s likely price (ticker: TSLA).
Wood recently said Barron’s Jack Hough said that the minimum expected return for a stock entering his portfolio is 15% per year for five years. “It’s a doubling in five years,” said Wood.
It produces 15% a year for five years. There is a useful rule of thumb on Wall Street known as the “72 rule”. The number 72 divided by the annual rate of return gives investors the years needed to have twice as many shares. It is an approximation, but a very good one. At 15%, the rule in equation 72 produces 4.8 years. In fact, it takes about 4.96 years for an investment to double at 15% per year. Still, not bad.
Wood told Hough that Tesla’s shares will do “substantially more” than the minimum rate of 15% in its most pessimistic case for Tesla’s shares at current levels. What exactly means better and what the current levels are is unknown. An annual return of 20% per year would produce a total return of around 150% in five years. This is substantially more than 100% done earning 15% per year for five years.
As for levels, Tesla’s shares averaged around $ 650 in the past few days. This could mean that the Wood Bear case is about $ 1,600 a share in 2026.
This leaves investors with positive grounds and arguments to investigate. Tesla’s shares have returned about 70% per year, on average, for the past five years. A repeat of this would put Tesla’s shares above $ 9,000, making Tesla’s shares worth about $ 9 trillion. This can be very aggressive.
Amazon.com
(AMZN) the shares had a return of about 40% per year, on average, in the last five years. If Tesla could achieve that return, its shares would reach about $ 3,500 by 2026. That would make Tesla’s shares worth approximately $ 3.5 trillion, which would be more than all other auto stocks combined by one factor. of two. Perhaps cutting that figure to $ 3,000 is prudent.
Right in the middle of the bear and bull cases is a good guess for the base case. This yields $ 2,300 per share. At $ 2,300 in 2026, Tesla’s shares would have returned about 28% per year, on average.
Wood’s target price for Tesla’s shares in five years could easily reach $ 2,000. In 2018, Wood made a legendary bet that Tesla would hit $ 4,000. That was before the 5 to 1 stock split. His call option totaled $ 800 per share, a level reached by Tesla in late 2020.
Going from $ 800 to $ 2,000 or more may seem like an exaggeration. How could things have improved so much less than three years after the initial $ 800 call? Well, Tesla made more money faster than expected, EV battery costs continued to fall, and more automakers are committed to an all-electric future.
Things are better for EVs.
Tesla’s highest target price on Wall Street is Piper’s Alex Potter at $ 1,200 a share. Target prices on Wall Street are typically those where analysts expect prices to rise in the next 12 months.
Tesla’s shares have seen a slight increase in speed recently. Shares have fallen about 15% so far this year, lagging behind returns from the
S&P 500
and
Dow Jones Industrial Average.
Business execution does not seem to be the problem. Fears of inflation and higher interest rates have recently hit stock prices for many high-growth stocks.
Tesla is a high-growth company. It expects to increase the volume by 50% per year, on average, in the foreseeable future.
Write to Al Root at [email protected]