Tesla: It's Not The Company, It's The Valuation

| About: Tesla Motors (TSLA)

Yesterday's announcement of Tesla's (NASDAQ:TSLA) third quarter results was actually not bad.

- 5,500 Model S deliveries

- Gross margin increased to 21% (non-GAAP) excluding ZEV credits

- Net income (non-GAAP) of $16 million

- Cash balance increased by $49 million to $796 million

Tesla Motors booked revenue of $431 million and lost $38 million in the third quarter, or $0.32 a share on a GAAP basis,. That was worse than the $0.25 a share loss the market was expecting according to the average analyst estimate on a GAAP basis.

But on a non-GAAP basis, the company earned $0.12 a share, which was a little better than the $0.11 the market was expecting, with adjusted revenue on a non-GAAP basis coming in at $603 million. For practical purposes, I think that non-GAAP results are the preferred accounting method in Tesla's case.

So Tesla actually made money and the proof is that cash increased by $49 million.

However the stock is down about 15% today. Why is the stock down even if the company made money and if results on a non-GAAP basis were a little better than expected? The reason is because the stock is way ahead of itself.

Even with today's 15% loss, one has to realize that the company's market cap is still about $18.5 billion. To put that in perspective, Tesla is trading at a Price/Sales ratio of 16, with a P/B ratio of 34 and a forward P/E of 90.

To put that even more in prospective, General Motors (NYSE:GM) trades at a 15 multiple, with a 12 month forward multiple of 8, a Price/Sales ratio of 0.33 and a P/B ratio of 1.8. Ford (NYSE:F) on the other hand trades at trailing P/E of 12, a 12 months forward P/E of 9, a Price/Sales ratio of 0.46 and P/B of 3.5.

Granted that Tesla is a high growth company, but there are limits to how much into the future investors should discount. In my opinion, in Tesla's case, investors are discounting at least 10 years into the future.

I do not have a problem with Tesla's management, with the product mix or with anything else about the company. But the fact of the matter is that this stock is a bubble any way one slices and dices it. As a result, it did not matter what the results might have been yesterday, the stock would have fallen no matter what.

I have hinted many times that Tesla is a bubble. I personally think the stock will remain expensive for a considerable period of time, unless something really bad happens to the company, and the market really dumps it.

As a result, I think investors will not make any money holding Tesla's stock for at least the next decade. So I will make this farfetched prediction about Tesla.

For the next decade, the stock will trade between $100 and just over $200 a share. The reason is that there is so much baked into the stock, it is not easy for this stock it to be able to trade much higher.

And if I am correct, then the right strategy is not to hold Tesla's stock, but to trade it up and down. Because if you hold it, you might end up making what Microsoft (NASDAQ:MSFT) shareholders have made over the past decade, which is nothing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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