Tesla: Not As Expensive As It Might Seem
Summary
- Revenue growth is the only thing that Tesla investors are currently interested in.
- It would be reasonable to compare TSLA through multiples previously adjusted for the expected growth rate.
- Oddly enough, the current Tesla price is quite balanced with the market.
In this article, I will try to more or less meaningfully analyze the fundamental state of Tesla (NASDAQ:TSLA) based on multiples. This is my first article about this company. Therefore, do not judge strictly. And I, in turn, will try to offer something that is worth your time.
Tesla is a growth company. Moreover, it is very likely that this company is at the very beginning of its journey. In such a situation, the key indicator on which to build an analysis is revenue. Because multiples based on EPS, in this case, can reach astronomical values, but it almost makes no sense. Therefore, as a basis for the analysis, I will use the P/S multiple.
Further, an investor usually invests not in what the company has now, but in what, in his opinion, it will have in the future. Therefore, in my opinion, forward multiples reflect reality better than historical ones. So, I will use the forward P/S multiple.
Next, comparative analysis based on multiples is based on the assumption that similar companies should have similar multiples. And here lies a big problem, since there are few companies like Tesla. Moreover, I believe that a direct comparison of multiples does not give a correct result because companies are always in different phases of their business cycles.
In this situation, it would be reasonable to compare Tesla through multiples previously adjusted for the expected growth rate. That is, I propose to compare TSLA through the forward P/S multiple divided by the expected revenue growth rate. The higher is the growth, the lower is the value of the multiple and the higher is the relative value of the company. In this case, we compare the dollar evaluation of each percent of the future company’s revenue growth.
To avoid ambiguity, here is the formula:
Source: Author
By using this approach, we also save ourselves from having to stick to one industry when choosing companies to compare.
So, let's get started.
This is what we get analyzing the forward P/S to growth (next FY) multiple:
Source: VisualizedAnalytics.com
As you can see, oddly enough, the current Tesla price is quite balanced with the market. But an even bigger surprise awaits if we look at the history of the company's implied price within this approach:
Source: VisualizedAnalytics.com
As you can see, judging by this multiple, the company's price was undervalued until January of this year. Then, in January, the actual price reached the implied level, and a correction followed. And now we are seeing a balanced state. In other words, the model has reflected the company's fundamental price reasonably well.
The next step, I worked with the forward P/S to growth (current FY) multiple. This multiple is, as it were, aimed at a closer future.
Source: VisualizedAnalytics.com
In this case, we also get a balanced state of the company. Although the history of the assessment through this multiple deserves less confidence than the previous one.
Source: VisualizedAnalytics.com
Bottom line
In my opinion, it is always dangerous to draw conclusions based on only one type of analysis. But, within the framework of comparative analysis through the most suitable, in my opinion, multiple, I believe that Tesla is not more expensive than the market now.
What gives me confidence is that, in this case, the key factor influencing the result is the expected growth in the company's revenue. Because revenue growth is the only thing that Tesla investors are currently interested in.
This article was written by
Analyst’s Disclosure: I/we 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (173)
Because Tesla is production constrained, by necessity they must shift their focus from one geographical area to another.
The important metric is GLOBAL deliveries.
Capisce?
"They're production constrained?"
Yes. They're production constrained.
Read the comment that you're responding to.
Look at the global delivery charts.
They're going up at a rapid rate. Last quarter was up 110% YoY.
Deliveries will continue to rise at least 50% annually for many years to come.
You seem to be well informed.
Anything else I should know about the world in 2041?
is in fact based upon a once in a lifetime event from the previous year. AKA Main Street was shut down to corrupt local and state government decrees. NOW Main Street is rapidly opening up and consumers can once again spend money on gyms, travel, restaurants, and concerts. AKA NOT TECH! Better think again. Wall Street had better wake up soon. You cannot have it all your way. Stay at Home cannot coexist with a normal economy. Whatever comes to B must come from A.
The problem I see with this is, you only take into consideration sales growth of last, current and next year.
These three years are the years where Tesla, due to tax payers money, political momentum and the lack of competition, was able to grow enormously. However this growth most likely will start to slow down significantly at the start of 2022, due to the fact subsidies will cease to excist and competition will be flood the markets with EV's.
MSFT has 68% gross margin and 48% EBITDA margin
FB has 81% gross margin and 48% EBITDA margin
ADBE has 87% gross margin and 41% EBITDA marginThere's no chance Tesla (already at scale) could ever get anywhere close to those.Silly analysis with no fundamental foundation.Sorry for being harsh.
All that really matter is how given auto company produces free cash flow. In Tesla case we clearly see that after some years of money burn now the company is pretty stable at free cash flow generation. So we can assess the company through its free cash flow. Last year Tesla's fcf was about 3B and we can assume that after Shanghai, Berlin and Austin factories will be working at full speed in 2022-2023 the fcf will jump to 7-10B yearly. In those times Tesla will still be growing story so 25-30 price to free cash flow ratio will not be too bad.
So from my point of view Tesla market cap must be below 300B or in another words Tesla overpriced roughly 2 times.
Rev 12/31/20 of $10.8B, compared to Rev Q12020 of $7.4B
P/E ranging somewhere between 1053-1347
PEG ranging somewhere between 3.85-5.2
Debt of around $11.7B.So, TSLA has to fill-in some damned big shoes to justify valuation, IMO.
But, hey, maybe Elon will 'beat' Robert Wadlow's feets.......or, maybe not.