HSBC & TESLA – A Tale of Two Shares
This story looks at the fortune of two companies, HSBC and Tesla, over the last year. I call it A tale of two shares.
It has a moral, but I haven’t worked out what it is yet!
Some basics stats
If you were an investor thinking of what to do with the money you received a year ago from dear Aunt Mabel (now deceased) you might well have considered the blue chip banking leviathan HSBC Holdings or the high-tech, high risk Tesla, maker of electric cars.
Here are some facts about the two companies in September 2019.
- Share price Sept 2019: $US 767.00
- Revenue $US56.0 billion
- Net income: $US8.7 billion profit
- Total assets: $US2.7 trillion
- Expected dividend: 8% of profits
- Share price Sept 2019: $US 444.00
- Revenue $US24.6 billion
- Net income: $US1.1 billion loss
- Total assets: $US34.3 billion
- Expected dividend: NIL
HSBC focuses on the high growth area of Asia but has operations all over the world. Tesla too has world-wide markets. But there the similarity ends. Have a look at the tables above. HSBC had an annual turnover in 2018/19 of US$56billion, Tesla’s was only US$24.6.
But HSBC had a profit of US$8.6 billion (and a profit of in excess of US$20 billion the previous year.) Tesla lost over a billion US dollars in 2019/20 and even more in the previous year.
HSBC’s total assets were US$2.7 trillion in September 2019, while Tesla’s were a mere US$34.4 billion.
Finally, HSBC was expected to pay a handsome dividend of 8% of the share price, while Tesla was expected to pay no dividend at all.
You had read conflicting reports of Tesla’s prospects. Many analysts believed Tesla would lose money for years and could possibly go bankrupt. Some others were more optimistic, anticipating their shares to rise to US$1,000! What?
Most analysts felt that HSBC’s share price was about right and although some anticipated a slight fall, at least there was a handsome dividend expected to compensate for any short-term losses.
What to do?
Naturally, you owed it to Aunt Mabel’s to invest “her” money wisely. It wasn’t vital to keep you going, but it wasn’t surplus to requirements either. The safe HSBC, or the highly speculative Tesla?
In the end you took the safer and much wiser bet: you went for HSBC. HSBC was, at least, steady. The analysts thought HSBC’s price about right. Tesla’s share price was already over-valued and could fall quite sharply. Tesla was a casino bet.
So, what happened in 2019/20?
So, what happened? HSBC hit a tsunami of problems: The US and China continued their trade face-off damaging sentiment in the Far East HSBC’s most important market; interest rates moved even lower; Covid-19 badly affected trade; HSBC suspended its dividend (!!!) and analysts saw new fintech innovations as being negative to established banks.
Tesla too had Covid-19 problems causing it to close its Californian and China mega-factories; Elon Musk continued to behave erratically saying his shares (at US$ 440.00) were overvalued; the market continued to “short” the stock; the company made a profit (albeit a very small one) in the 3rd Quarter 2020). Competition in electric cars from the big boys of motor manufacturing increased sharply.
Similar problems, similar outcomes?
Similar problems, perhaps leading to a similar outcome for the shares? Don’t you believe it! Let’s have a look at the statistics for September 2020.
- Share price Sept 2020: $US 413.00
- Share price movement over 12 months: – 46.15%
The safe HSBC saw its shares continue to tumble from nearly US$800.00 in September 2019 to US$413.00 in September 2020 – a fall of 46% (and there was no dividend by way of compensation!).
- Share price Sept 2020: $US 2,200
- Share price movement over 12 months: + 394%
The high-risk Tesla saw it shares increase from US$444.00 in September 2019 to US$2,200 in September 2020 – an increase of nearly 400%. (Note Tesla undertook a 5 to 1 share split on 31st August 2020 since when its shares have increased by a further 12%.)
It was obvious
So Aunt Mabel, what do you think the moral of “HSBC & TESLA – A Tale of Two Shares” really is? It’s hard to say isn’t it. But the outcome was obvious, wasn’t it?
However, I still think only a speculative fool would have bought Tesla.
For further information on the London Stock Exchange go to: https://www.londonstockexchange.com/
And for New York Stock Exchange go to: https://www.nyse.com/index