Four years ago, shares in GameStop (US:GME) took off when the Reddit community decided it wanted to defy the hedge funds that had shorted the loss-making video games retailer. The share price has since come down from its 2021 peak, but even today – despite continuing negative free cash flow – shares are 30 times higher than they were in 2019. In some cases, the market really can stay irrational for longer than you can remain solvent.
- Strong operating margins
- Large potential addressable market
- Loyal retail shareholder base
- Recent car volumes have disappointed
- Very highly valued
- Falling earnings forecasts
- Political risk
This is why it is so hard to bet against electric vehicle (EV) maker Tesla (US:TSLA). On almost every important metric, it is massively overvalued. Tesla trades on a forward price/earnings ratio of 121, compared with 14 for rival Chinese EV maker BYD (HK:1211) and six for Ford Motor Company (US:F). In terms of price to free cash flow, Tesla sits on a multiple of 285 for 2025, while BYD and Ford trade on 22 and five, respectively. And yet Tesla's loyal investor base keeps sending the shares higher.