This blog was originally posted in December 2020, republished with updated data.
Of the many charts illustrating the enormous run-up of growth stocks in the past few years, the chart below may take the cake.
Tesla (TSLA) began 2020 with a market capitalization under $100 billion, and by November 25th, 2020 had a value of over $500 billion — a five-fold increase. As of the writing of this blog, Tesla now boasts a higher market cap than Berkshire Hathaway — the conglomerate run by Warren Buffett which consists of venerable businesses such as: GEICO, Burlington Northern Santa Fe, Benjamin Moore, NetJets, Duracell, Dairy Queen, and many more.
To put the stock’s rally into context, back in March 2020, Berkshire Hathaway had enough cash and short-term investments (around $100B) to buy Tesla outright as its market cap fell below $100B. In terms of revenue, Berkshire earned $255B in revenue in 2019 — ten times Tesla’s revenue of $25B.1
Has Tesla really increased shareholder value by 500% in two years? Not likely, but the company’s 5:1 stock split and the announcement of its inclusion into the S&P 500 Index was enough to heighten the already-lofty sentiment around the stock. Using estimated 2020 earnings, Tesla’s stock has been trading at a price-to-earnings ratio of roughly 283x (depending on the day) compared to less than 30x for the S&P 500 Index.