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World's Foremost Valuation Artist: Tesla is Overvalued

Aswath Damodaran is one of the preeminent voices in the nation (world) on the valuation of businesses. The dude literally wrote the book on the art of valuation; I should know, as I perform valuations for a living and am up to my neck in his work and his books.

My point in all of this is that, when Damodaran speaks, the investing community pays heed to what he says. That's why it's a big deal that he came out today and said he believes that Tesla is overvalued; massively so, in fact, calling it 67% overvalued, even using what he said was an "optimistic narrative."

Now, valuation is a very murky field. A valuation is subject to a lot of manipulation, estimates, and judgment. A few tweaks here and there and you can change the value of a firm by +/- 3-400%. However, Damodaran is well respected, and I have the utmost faith that his numbers and assumptions are as purely developed as anyone's. Also, the following assumptions lend credence to his estimates being Tesla-friendly:

  1. Assumed potential sales equal to that of Audi's
  2. Assumes potential profit margin equal to that of Porsche's, one of the highest in the biz.
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Many will come in and pooh-pooh this valuation as the incoherent musings of someone in academia who has no clue what he's doing and certainly doesn't know the auto industry and what Tesla is capable of. Those of you who do so are choosing to be willfully ignorant of both what he represents to the valuation industry and of his analysis itself.

As for me, I'll be buying some puts this afternoon. And then I'll probably buy after I exercise those puts in however long, because I believe in Tesla as a firm, but certainly not at this price.

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Read for yourself at the WSJ. Posting from my phone so it will take me a minute to get the link up.

http://blogs.wsj.com/moneybeat/2013…

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