Don't look now, but Tesla is trading around $1,200 a share. It actually closed above that level yesterday, just a day after closing above $1,100 for the first time. And that was just four days after it first closed above $1,000, which also came just a day after it closed above $900 for the first time ever.  

So yes, its rally has been dizzying. Some would politely even call it "insane." The share price is a convenient proxy for the market cap--at $1,200, it's a $1.2 trillion company. That makes Elon Musk worth more than $300 billion--vaulting him above the world's next richest person, Jeff Bezos, at $199 billion. It also makes Tesla the fifth most valuable company in the U.S., behind Microsoft ($2.49T), Apple ($2.47T), Alphabet ($1.95T), and Amazon ($1.7T). 

Can that valuation possibly be merited? It would be easy to say of course not. I was super concerned about it being added to the S&P 500 last year at just a $550 billion valuation, which at the time seemed insane and unsustainable. Now, it's doubled in value again. But this time, I kind of get it. 

Let's look at the very basics--the profitability that supports its price-to-earnings multiple. Don't forget that Tesla's takeoff came on the heels of its strong third-quarter earnings report on October 20th. The company reported $1.6 billion in profit--a big leap given it was only its second billion-dollar profit quarter ever. Earnings per share were $1.86, versus the $1.59 expected. And Tesla's gross profit margin rose to 30.5% despite massive supply chain pressures.  

Those numbers alone have impressed analysts--even Bernstein's Toni Sacconaghi, who has an underperform rating and a $300 price target on Tesla. He just put out a note this morning acknowledging that "Tesla's margin improvement over the past year has been striking." Its automotive profit margins, he notes, have risen from 21% to 26% year-to-date. And that's despite "lower [average selling prices], a refresh of Model S and X, and incremental supply chain and logistics costs."  

The Model Y, he says, has been a big driver of that. It's the bigger, SUV-style Tesla, and Sacconaghi estimates it has profit margins over 30%, versus 20-25% for the Model 3 sedan. And demand for it is booming. Elon Musk says it will become the best-selling SUV globally. People guffaw at that, but it's already the second-place SUV by sales in California, beating the Ford F-series and only trailing the Toyota Rav4. The Model 3, meanwhile, is the top-selling premium sedan in the world and just became the top-selling car of any kind in Europe.  

As sales accelerate--and profit margins expand--Tesla's earnings estimates are following suit. The street's gone from thinking they would earn $3.50 a share this year to $4 in the spring to $5 by August to now close to $6. In other words, the doubling in the share price has been matched by a near-doubling in just near-term EPS; the bulls are thinking $10-12 for next year, possibly $15-18 for 2023, although few on Wall Street will put that in black and white. 

So yes, Tesla's price-to-earnings multiple today is up around 150, if you use $8 to approximate its next-four-quarters earnings power. Or 120 if you use $10 per share. But that's definitely not unheard of for the best-performing stocks in recent years. Netflix and Amazon also traded over 100 times forward earnings in their early, highest-growth days. "For years the Street fretted about Amazon and Netflix's valuation, [but they] along with Tesla have been some of the biggest wealth creators for investors ever," Dan Ives of Wedbush told me.  

Ives has a $1,100 target on Tesla, representing a 50 P/E multiple on its long-term earnings power of $20 a share. His bull case is $1,500 if the earnings power is more like $30. Point being, at a time when we've seen meme stocks explode without any earnings story to match, Tesla's rocketing share price hardly seems extravagant. Its rising earnings power is the real story of the year.  

See you at 1 p.m!

 Kelly

Twitter: @KellyCNBC

Instagram: @realkellyevans