Tesla’s Musk And Netflix’s Hastings: A Brief History Of CEO Warnings About High-Flying Stocks
Tesla Motors TSLA -3.02% has a lot going on these days. It’s building its multi-billion dollar gigafactory in Nevada, ramping up production of its Model S and developing new vehicles to serve different segments of the automotive market.
But much of the focus Friday was on CEO Elon Musk’sremarks about the electric carmaker’s stock price Thursday:
I do think people sometimes get carried away with our stock. I think our stock price is kind of high right now to be totally honest. If you care about the long-term Tesla, I think the stock is a good price. If you look at the short term, it is less clear.
Hardly a screaming sell call, and nothing that plenty of analyst and money managers haven’t been saying for the past year and a half. But when Musk speaks, people listen, and Tesla shares dropped sharply Friday morning before recouping a chunk of their losses in afternoon trading.
Don’t put too much stock in Musk’s remarks though; if Tesla winds up beating a faster retreat it won’t be because its leader scared off investors.
After all, Thursday wasn’t the first time Musk issued such a warning. In October 2013, while opening a Tesla showroom in London, Musk said the company’s then $175 price tag was “more than we have any right to deserve,” Fair comments considering the stock’s 400% rally from the start of 2013 to there. But investors who took him too seriously and sold have missed out on the further 57% advance since, and shares now sit above $275 even with Friday’s decline.
Musk is hardly the only executive who has tried to talk down a soaring stock in recent memory.
Around the same time last fall that Musk was cautioning that Tesla’s surge was too much, Netflix NFLX +0.64% CEO Reed Hastings warned of the excessive “euphoria” behind a 260% spike in his company’s shares to $350. Fast-forward almost a year and Netflix now goes for nearly $475 after a 36% gain.
For every Musk or Hastings, there are dozens upon dozens of CEOs that will tell you their stock is still cheap, even after years of gains. (Athenahealth CEO Jonathan Bush said in May his $100 stock could be worth $1,000 in response to criticism from short sellerDavid Einhorn). They can’t all be right all the time; otherwise nobody would ever lose money owning stocks.
No chief executive of a publicly-traded company ignores its stock price, but their focus should be on running a business and not where the shares trade. When management does that, the stock tends to take care of itself over time.
There’s no question that Tesla is wildly expensive on any metrics used to measure traditional automakers like General Motors GM -0.14% or Ford Motor F -0.75%, but that has been the case for virtually its entire advance over the last 18 months.
So if you think the company’s fundamentals and future warrant buying or owning at such lofty valuation levels, Musk’s comments shouldn’t scare you away.