Invest in Alibaba or Tesla?

Someone asked me recently would I consider investing in Alibaba or Tesla now that their stock prices are much lower.

Of course, for long time readers of my blog, it is probably easy to guess my answer. 

Singapore has sufficient opportunities for me and investing in Singapore suits my purpose.

I am also at an age where I am less interested in excitement and more interested in stability. 

Yes, AK is a young senior, as coined by PM Lee.

Still, from time to time, the mind forgets the body's age.

So, I bought into Hang Seng Tech ETF a few years ago and I blogged about it too. 

I was quite clear that I was trading the ETF since the ETF did not pay a dividend. 

After a few rounds of trading, my current smallish position is at such a low price that I am OK with holding on to it as a speculative position. 

Of course, by holding on to the ETF, I have an exposure to Alibaba too. 

To be quite honest, if I must choose, I would invest in Alibaba and not Tesla.

From a valuation perspective, well, conventional valuation perspective, Alibaba is fairly valued and some might even say it is undervalued.

It is pretty easy to make a case to invest in Alibaba now if not for policy risk in China.

As for Tesla, I blogged about it before a year ago when its stock price plunged 10% to $163 per share in a day.

At the time, Tesla was trading at a PE ratio of some 45x even after the price plunge.

To me, it wasn't mouth watering but it was eye watering.

I said back then that if Tesla was the growth company people said it was, then, perhaps a 45x PE ratio was acceptable.

However, at a PE ratio of 45x, Tesla would have to grow its earnings at 45% a year to have a PEG ratio of 1x which would make it fairly valued.

To be fair, looking at industry peers, a PEG ratio of 1.5x might be more reasonable which meant that Tesla should grow at 30% a year to make a PE ratio of 45x acceptable.

Was Tesla growing its earnings at 30% a year? No.

At the time, I said a more reasonable price for the stock would be around $80 a share.

With its stock price at $147 now which is much lower than where it was a year ago, Mr Market could be slowly waking up to the reality.

Alibaba might have to face policy risk but Tesla has personality risk amongst many other risks.

Personality risk?

The erratic and hubristic Elon Musk.

I remember someone asking him about BYD a few years ago in an interview and if he was concerned with the competition.

Elon sniggered and said, "Have you seen their cars?"

Well, see who is laughing now?

If AK can laugh to himself, so can you.

Related post:
Tesla's results and valuation.