Tesla — A Quick Look
TSLA stock is now covered by emriches.com. See “Stock in Scope” > “Tesla” for company financial metrics.
Tesla stock has literally gone parabolic this year; but do the fundamentals support the meteoric rise in the share price? Per below, one can see the TSLA fundamentals pale in comparison to the company’s market cap and enterprise value. For comparison, the second image is a similar chart for Gilead (GILD).
That said, TSLA is a growth stock while GILD is more of a value/dividend stock; so some valuation differences should be expected. Currently, TSLA trades at a P/E north of 1,000 and a P/S around 20 times. Additionally, revenue growth came in recently at around 40% year over year for the most recent quarter; however, growth rates are far from consistent and vary with time.
Tesla bulls currently argue that relative to other growth stocks, TSLA’s P/S ratio is reasonable and the company actually makes money! They also tend to predict quarter after quarter of 20%+ growth rates and other avenues (i.e. solar power, batteries) of immense growth potential
Meanwhile, Tesla bears see the growth, but also recognize increasing sales growth comes with increasing costs. Therefore, the sales growth that actually finds its way to the bottom line is minuscule. Also, a deeper look into the financial statements shows TSLA’s true source of net income is derived from government regulations at the moment….where other companies pay Tesla for energy credits so that they can be perceived as more environmentally friendly (https://finance.yahoo.com/news/ev-regulatory-credits-why-tesla-113115520.html). For example, Fiat Chrysler has committed to buying over $1 billion of energy credits from Tesla to comply with new European environmental regulations going into effect in 2021. Such a model, doesn’t seem sustainable; but then again, I’m sure such regulations are here to stay.
My Take: Overall, TSLA is too pricy for me. Although I do realize the stock probably won’t go down much as their potential for future growth is great and their current shareholders would rather loose an arm than part with their TSLA shares, the stock remains out of my valuation range; particularly as new entrants seem to enter the EV space every day. That said, I think Elon is genius and was very smart recently when he urged the company to issue more shares (at sky high prices) to add significant cash to the balance sheet and pay down a little bit of debt. Such a move sets TSLA up with enough capital to further invest for many years to come.
Overall, I do enjoy investing in a good growth stock here and there. However, generally, I prefer growth stocks based more in the software/cloud space as operating costs are not nearly as high and margin are thick.