It’s quite common to see share prices follow a certain pattern, particularly if they are prime ways to play hot themes. Their shares can soar on the hype and subsequently fall back as investors take profit and pay more attention to valuation. Occasionally you then see the shares start to move up again as the market makes a positive reappraisal.

Beyond Meat is a great example, shooting up last year on its stock market debut, then crashing back down, only for it to start rising again. This year alone its share price has appreciated by 58%.

Investors have taken another look at the company and welcomed news that it is rolling out products for Dunkin Donuts and McDonald’s, as well as signing a multi-year pea protein supply deal with Roquette and eyeing up expansion across Europe and China.

Displaying a slightly different share price pattern but still going through a market reappraisal is electric car maker Tesla. Its stock has increased by 71% in value in less than two months thanks to improving production volumes, delivering its first China-made cars, and – perhaps most importantly – signs that profits are not that far away.

The company had a lot of cynics but ticking off a series of milestones and providing proof that the business is going places has served to win more supporters.

It is hard to know exactly when a company is going to reach the magic turning point, but Tesla’s recent share price performance just shows you how powerful that re-rating can be when there is enough evidence to put the company in a better light.

Robotic process automation software group Blue Prism (PRSM:AIM) has just done the same thing. After seeing its share price soar between 2016 and 2018, the stock then fell by two thirds in value up to late last year amid concerns about a slowdown in the pace of growth.

A trading update in November and then full-year results this January made the market take another look. Importantly, plenty of existing customers are being persuaded to take more products. Blue Prism’s stock has soared by 75% in value since mid-December 2019, which is incredible.

For Tesla, its shares are now trading at record highs and at $101bn the business is worth more than Volkswagen ($96bn), despite the latter owning such big car brands as Audi, Porsche and VW.

That brings us to the moot point, namely valuation. At what point is the market overpaying for such companies? The market certainly seems happy to pay top dollar now, but at some point reality will kick in and the stocks will be rated as ‘normal’ operating businesses rather than pricing them on future earnings potential.

Just as you might be looking for the turning point when stocks re-rate, keep looking for that de-rating moment when they are more mature businesses.

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