I could already have doubled my money this year owning Tesla stock. Why didn’t I?

Back to the beginning of last month. Did you hear that? Tesla (NASDAQ:TSLA)? Did you know Tesla shares can be bought or sold by individual shareholders?

For me, the answer is yes. I hardly thought I was alone. Tesla has been one of the most talked about stocks in recent years, not some little unknown fish in a quiet corner of the stock market.

But despite this, Tesla’s stock price has more than doubled between its lowest point in January and its high point over the past few days.

If I had gotten in at the right time just a few weeks ago, I would have seen my investment double at one point.

I was very familiar with the company last month but missed this phenomenal rally. Why didn’t I buy a Tesla last month?

If, but maybe

As an investor, there is no point crying over spilled milk. But our experience can still teach us valuable lessons for future investment choices.

Just because a stock has doubled (or halved) doesn’t mean your initial investment hypothesis was wrong. Jumping in and out of shares on a short-term basis hoping to take dramatic price swings is not an investor’s speculation.

As a long-term investor, I have to ask myself two questions when evaluating stocks as potential additions to my portfolio.

First, how confident is it that the company will spend excess cash in the future? Second, does the stock currently represent a large enough discount to projected free cash flow, when allowing for the inherent risks and costs of tying up cash in the company?

In other words, I use the discounted cash flow valuation method.

Why don’t I buy a Tesla

Although I use that method, other investors may not. They may see the value of Tesla (or any company) very differently than I do. That makes the stock market. In addition, there are many speculators in the Tesla stock market and this can affect the price, sometimes dramatically.

I didn’t buy a Tesla at the beginning of the year because I didn’t think it was worth the money. The stock price has roughly doubled, but I don’t think the automaker’s prospects have improved dramatically over that period. So I am now even more overvalued.

Great company, bad prices

I really think Tesla is a promising company with a bright future.

But liking Tesla as a business and thinking that it has achieved its current market capitalization of $650bn are two different things. Last year Tesla generated $7.6bn in free cash flow. It has reduced prices as the electric vehicle market becomes more competitive. That can eat into the profits.

I expect continued strong revenue growth from the company. It has significant competitive advantages, from its distinctive brand to its embedded customer base. That can help increase your free cash flow in the future.

But the risk is pretty big and I think Tesla stock is perfectly priced. Therefore, I still have no plans to add Tesla to my portfolio.