Falling -4.0% today, shares of Tesla are giving us reason to question their average rating of buy. Did analysts get things wrong about this stock? Let's dive into the numbers to see whether TSLA is overvalued at today's price of $292.13 per share.
Tesla has a trailing price to earnings (P/E) ratio of 104 based on its 12 month trailing earnings per share of $2.81. Considering its future earnings estimates of $15.93 per share, the stock's forward P/E ratio is 18.3. In comparison, the average P/E ratio of the Consumer Cyclical sector is 24.27 and the average P/E ratio of the S&P 500 is 15.97.
We can also compare the ratio of Tesla 's market price to its book value. A company's book value refers to its present liquidation value -- or what would be left if the company sold off all its assets and paid off all of its debts today. Importantly, the book value does not include intangible assets such as the value of its brand and the goodwill of its customers. TSLA has a book value of 25.1, with any figure close to or below one indicating a potentially undervalued company.
A comparison of the share price versus company earnings and book value should be balanced by an analysis of the company's ability to pay its liabilities. One popular metric is the Quick Ratio, or Acid Test, which is the company's current assets minus its inventory and prepaid expenses divided by its current liabilities. Tesla 's quick ratio is 0.968. Generally speaking, a quick ratio above 1 signifies that the company is able to meet its liabilities.
Next up in our analysis is Tesla's levered free cash flow, which stands at $5,962,749,952. This represents the cash that is available to the company after all of its expenses and income are accounted for -- including those that arise outside of its core business activities. This money can be used to re-invest in the business or to payout a dividend. For now, at least, Tesla has chosen the former.
At Market Inference, we will keep monitoring Tesla to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest. To stay informed about newsworthy stocks, make sure to subscribe to our free daily newsletter!
