Tesla: Is the Market Efficiently Pricing or Efficiently Excited?
This incident is a decision critical incident covering the valuation of Tesla, based on the market perception and the fundamentals. As of November 24, 2017, Tesla’s stock price has been increasing significantly through the year, but the stock returns do not seem to be justified by the firm’s fundamentals. Even though the market is enthusiastic about Tesla’s potential, there is also concern that Tesla might be overvalued.
In completing this assignment, students should be able to:
1. Understand the Efficient Market Hypothesis (EMH) and its implications for stock analysis and active investors
2. Evaluate the factors contributing to Tesla’s phenomenal stock market returns
3. Assess Tesla’s position with respect to its competitors
4. Evaluate whether Tesla’s stock price is consistent with its financial fundamentals
This critical incident is appropriate for undergraduate courses in finance and accounting. The purpose of this critical incident is to get students acquainted with simple relative valuation techniques and to foster critical thinking about whether stocks are fairly priced. The critical incident addresses topics including asset pricing, valuation, and information asymmetry.