A story stock is the stock of a company that trades at prices based on a story surrounding it rather than on the company's fundamentals. Story stocks are usually considered tremendously overvalued by a majority of finance professionals. Story stock companies tend to leverage their status as public companies to access capital and sometimes forecast earnings growth rates that exaggerate their strength.
2. Tesla
The story of Tesla (TSLA +1.75%) is that of the first luxury electric car maker, with a charismatic CEO, Elon Musk, and predictions that Tesla would become the 800-pound gorilla in the burgeoning electric vehicle market. The company's enterprise value has exceeded $2 billion for the past 10 years despite not becoming profitable on an annual basis until 2020. Tesla's P/E ratio at the end of 2020 was an astronomic 1,342.
Whether everyone will drive an electric vehicle and Tesla will dominate the industry is still undecided. Regardless of the company's future prospects, its stock clearly trades with significant growth potential already priced in.
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