Should You Buy Tesla Stock? 2-Minute Analysis
- 6 months ago
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What Tesla has been able to do over the last 14 years is remarkable.
In 2008, the company produced less than 500 vehicles. Over the last 12 months, they’ve delivered more than 1 million vehicles and made over 67 billion dollars in revenue.
Even more impressive, Tesla has been free cash flow positive for the last 9 consecutive quarters and earned 9.5 billion dollars in net income and almost 7 billion in free cash flow over the last 12 months.
In tandem with that success, the share price has exploded giving the company an enterprise value of 630 billion with 18.9 billion in cash. That means the company now trades at around 9 times revenue, 66 times earnings and 91 times free cash flow.
That high valuation is underpinned by rapid growth.
Tesla shareholders can't have wished for much more.
The company has built a fantastic brand with great products, grown into a hugely profitable business with superior technology and the potential market for electric vehicles is huge.
However, there are some risks to owning Tesla stock.
First, at 66 times earnings, the valuation is sky high and requires the company to maintain its rapid growth.
Second, a huge amount of competition is finally coming to market. Lucid, Rivian, Polestar, Nio as well as legacy autos like General Motors and Ford. The list goes on and on.
Latest numbers from General Motors show strong demand for The Bolt. It may not be a model 3 but GM has a 46 billion market cap in comparison to teslas 600 plus billion.
Third, the global economy is showing signs of weakness and autos are typically a bad place to be during a recession. In 2008, for example, General Motors went bankrupt, Ford lost 75%, Volkswagen lost 70% and so did Toyota. It’s hard to see Tesla being immune to a global slowdown.
Fourth, there are now short-term pressures on the stock price following Elon Musk's purchase of Twitter as Elon will need to sell down shares to pay for the acquisition.
So let’s consider one optimistic scenario where Tesla grows earnings 30% a year over the next 5 years then trades at 25 times earnings in 5 years time. Tesla would then be worth around 882 billion dollars for an investment return of 8.8% per year. That’s fairly low considering how much growth is required to get there.
Fundamentally, Tesla is a fantastic business and it will continue to succeed. But that doesn’t mean it’s worth $630 billion and I feel the valuation could easily slip to around 350 or 400 billion in the short term..
That’s why I give Tesla a bearish rating and why I own a small short position in the stock. But remember these are my personal opinions, not financial advice. And if you are trading Tesla bear in mind the company is reporting earnings this Wednesday.
#stocks #investing #teslastock #overlookedalpha
What Tesla has been able to do over the last 14 years is remarkable.
In 2008, the company produced less than 500 vehicles. Over the last 12 months, they’ve delivered more than 1 million vehicles and made over 67 billion dollars in revenue.
Even more impressive, Tesla has been free cash flow positive for the last 9 consecutive quarters and earned 9.5 billion dollars in net income and almost 7 billion in free cash flow over the last 12 months.
In tandem with that success, the share price has exploded giving the company an enterprise value of 630 billion with 18.9 billion in cash. That means the company now trades at around 9 times revenue, 66 times earnings and 91 times free cash flow.
That high valuation is underpinned by rapid growth.
Tesla shareholders can't have wished for much more.
The company has built a fantastic brand with great products, grown into a hugely profitable business with superior technology and the potential market for electric vehicles is huge.
However, there are some risks to owning Tesla stock.
First, at 66 times earnings, the valuation is sky high and requires the company to maintain its rapid growth.
Second, a huge amount of competition is finally coming to market. Lucid, Rivian, Polestar, Nio as well as legacy autos like General Motors and Ford. The list goes on and on.
Latest numbers from General Motors show strong demand for The Bolt. It may not be a model 3 but GM has a 46 billion market cap in comparison to teslas 600 plus billion.
Third, the global economy is showing signs of weakness and autos are typically a bad place to be during a recession. In 2008, for example, General Motors went bankrupt, Ford lost 75%, Volkswagen lost 70% and so did Toyota. It’s hard to see Tesla being immune to a global slowdown.
Fourth, there are now short-term pressures on the stock price following Elon Musk's purchase of Twitter as Elon will need to sell down shares to pay for the acquisition.
So let’s consider one optimistic scenario where Tesla grows earnings 30% a year over the next 5 years then trades at 25 times earnings in 5 years time. Tesla would then be worth around 882 billion dollars for an investment return of 8.8% per year. That’s fairly low considering how much growth is required to get there.
Fundamentally, Tesla is a fantastic business and it will continue to succeed. But that doesn’t mean it’s worth $630 billion and I feel the valuation could easily slip to around 350 or 400 billion in the short term..
That’s why I give Tesla a bearish rating and why I own a small short position in the stock. But remember these are my personal opinions, not financial advice. And if you are trading Tesla bear in mind the company is reporting earnings this Wednesday.
#stocks #investing #teslastock #overlookedalpha