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Today is T-Day: Tesla lands in the S & P500 with a 600 billion market cap. What if it was the beginning of the end?



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Risultati della traduzione

The big day of Tesla’s debut on the Standard & Poor’s 500 has arrived and the load of expectations that accompanies it is those reserved for epochal events. Even a watershed, at least judging by the two dynamics represented in these graphs: if the first shows plastically the ride of the Elon Musk company stock from the official announcement of inclusion in the Wall Street benchmark index,

the second works as a thermometer of the fever that marked the last hours of negotiations before landing. Not only did Tesla’s shares close trading on a record high of $ 695 but they recorded a trading volume of over 200 million shares in one day for a value of approximately $ 148 billion: over 50 of which in the last 15 minutes trading before closing.

And if the consensus of analysts sees the so-called daily traders having played the lion’s share in that congestion of exchanges, many point out that that mass of purchases at the end clearly appears to be the result of pre-set algorithmic programs. Hence, high frequency trading that refers to hedges and quant funds.

In short, all crazy for Tesla. Almost.

Because to cast some heavy shadow of doubt on the entire operation and the risks it could entail, a Wall Street veteran like Rob Arnott, author with some colleagues of the Research Affiliates of a working paper that leaves very little interpretation, starting with the title: Tesla – The largest-cap stock ever to enter S&P 500: a buy signal or a bubble? The classic million dollar question. Indeed, 600 billion. That is, the science fiction market cap with which Tesla lands on Standard & Poor’s, becoming in fact one of the most influential and important players, after having literally torn up the main competitors in the automotive sector at the capitalization level.

The main issue underlying the most pessimistic views is always the same: precisely the weight with which Tesla will become part of the index, therefore its ability to shift the balance. A relatively reassuring answer is offered by the analysis carried out in this regard by Goldman Sachs and contained in these two other graphs, from which it is immediately clear how the fears for an elephant approach in glassware or an iceberg against the Titanic are totally detached from the reality numbers. In fact, according to the current capitalization, Elon Musk’s company will actually have a weight of approximately 1.5% on the total index.

So, sidereally far from the erroneous calculation of those who already foreshadowed a doubling of the earnings per share multiples regime of the Standard & Poor’s 500 today, a sober 22x that already represents a level very close to record highs.

And this de minimis contribution to the index expansion regime would still have been such even if Tesla itself were traveling on a P / E ratio of 500x or 1000x, instead of the current 170x compared to 2021 earnings expectations.

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