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Article

Tesla: Anatomy of a Run-Up

Bradford Cornell and Aswath Damodaran
The Journal of Portfolio Management Fall 2014, 41 (1) 139-151; DOI: https://doi.org/10.3905/jpm.2014.41.1.139
Bradford Cornell
is a visiting professor of financial economics at the California Institute of Technology in Pasadena, CA.
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  • For correspondence: bcornell@hss.caltech.edu
Aswath Damodaran
is a professor of finance at the Stern School of Business at New York University in New York, NY.
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  • For correspondence: adamodaran@stern.nyu.edu
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Abstract

This article presents a detailed anatomy of the nearly seven-fold run-up in the price of Tesla stock between March 22, 2013 and February 26, 2014, and attempts to determine the role played by investor sentiment. Tesla offers a unique opportunity in this context because the run-up was on the order of magnitude experienced by some of the most volatile technology stocks, but Tesla operates in an industry—automotive manufacturing—and a potential industry—battery construction—that are mature and populated by established competitors. This makes it possible to construct discounted cash flow valuation models that are anchored to established fundamentals. On the basis of these models, in conjunction with a detailed event study and analysis of institutional stock holdings and short-sales data, the authors conclude that the run-up cannot be explained as a rational reaction to fundamental information. Instead, they conclude that, at the end of the run-up, the stock was overvalued by approximately 150%. In their view, the case study provides support for the assertion by Lawrence Summers that price and rational value can diverge significantly for prolonged periods of time.

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The Journal of Portfolio Management: 41 (1)
The Journal of Portfolio Management
Vol. 41, Issue 1
Fall 2014
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Tesla: Anatomy of a Run-Up
Bradford Cornell, Aswath Damodaran
The Journal of Portfolio Management Oct 2014, 41 (1) 139-151; DOI: 10.3905/jpm.2014.41.1.139

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Tesla: Anatomy of a Run-Up
Bradford Cornell, Aswath Damodaran
The Journal of Portfolio Management Oct 2014, 41 (1) 139-151; DOI: 10.3905/jpm.2014.41.1.139
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  • Article
    • Abstract
    • TESLA: A BRIEF HISTORY
    • PRICING VERSUS VALUATION: CONVERGENCE AND DIVERGENCE
    • THE DCF VALUATION MODELS FOR TESLA
    • THE PRICING NARRATIVE
    • THE IMPACT OF NOISE TRADING
    • RECONCILING PRICE AND VALUE
    • Possible Sources of Missing Value
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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  • PDF (Subscribers Only)

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