Tesla shares could rise 400% this year, but an investment researcher warns of the risks .
New Constructs CEO David Trainer calls Tesla the riskiest stock on Wall Street and says the fundamentals don't support such a high price and value.
"Any kind of best-case scenario you want to think about what Tesla is going to do — if they're going to make 30 million cars over the next 10 years, and get into the insurance business and have the same high limits as Toyota — even if you think it can be done, the stock price still implies that the earnings are going to be even bigger than that," Trainer said on CNBC's "Trading Nation" on Thursday.
He notes that the stock price implies anywhere from 40% to 110% market share based on the average selling price. At the current average selling price of $57,000 and assuming 10.9 million car sales by 2030, that implies a market share of 42%, Trainer says. Tesla trades at 159 times forward earnings.
Trainer also said that its recent stock split could also prove risky for new investors entering the investment space.
“Stock splits don’t matter in value. They don’t change the size, they just break it into more pieces. Frankly, I see stock splits as a way to attract more unsuspecting, less sophisticated traders to just try to chase that capital and that’s not a real strategy,” Trainer said.
Tesla split its stock five-for-one on Aug. 31 — shares rose 12 %. However, shares closed last week down 5% after the company's largest outside shareholder Ballie Gifford reduced its stake.
A more realistic valuation, Trainer says, would be much lower than current levels.
“I think about a 10this probably appropriate if you look at a reasonable level of profit,” he said. “Tesla is not in the top ten in market share or car sales in Europe for electric vehicles and that’s because the laws have changed in Europe, and they’ve given manufacturers the incentive to release hybrids and electric vehicles. The same is happening in the US. I think realistically we’re talking about something closer to $50, not $500, as a real value.”
Tesla has not yet responded to a request for comment.
