Tesla was one of the market's biggest losers today, losing 5.7% of its value and underperforming both the S&P500 and Dow Industrial composite indices by -0.0%. The large-cap Consumer Discretionary company ended the day at $243.47, but is still well above its 52 week low of $101.81 and nearing its average target price of $239.82. Over the last 12 months, Tesla is down -10.0%, and has underperformed the S&P 500 by 26.0%. The stock has an average analyst rating of hold.
Tesla has a trailing 12 month price to earnings (P/E) ratio of 69.8, which corresponds to its share price divided by its trailing earnings per share (EPS) of $3.49. The company's forward P/E ratio is 51.6 based on its forward EPS of $4.72.
Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Consumer Discretionary sector has historically had an average P/E ratio of 22.33. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present value of the company if it sold all its tangible assets and paid off all debts today. Tesla's P/B ratio of 15.11 indicates that the market may be overvaluing the company when compared to the average P/B ratio of the Consumer Discretionary sector, which is 3.12.
To understand Tesla's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 81,462,000 | -60,609,000 | 26 | 4.0 |
| 2022-02-07 | 53,823,000 | -40,217,000 | 25 | 19.05 |
| 2021-02-08 | 31,536,000 | -24,906,000 | 21 | 23.53 |
| 2020-04-28 | 24,578,000 | -20,509,000 | 17 | -10.53 |
| 2019-02-19 | 21,461,000 | -17,419,000 | 19 | 0.0 |
| 2018-02-23 | 11,758,751 | -9,536,264 | 19 |
- Average gross margins: 21.2 %
- Average gross margins growth rate: -0.3 %
- Coefficient of variability (lower numbers indicate more stability): 17.0 %
Next, we consider the Tesla's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 81,462,000 | -7,021,000 | 17 | 41.67 |
| 2022-02-07 | 53,823,000 | -7,110,000 | 12 | 100.0 |
| 2021-02-08 | 31,536,000 | -4,636,000 | 6 | inf |
| 2020-04-28 | 24,578,000 | -3,989,000 | 0 | 100.0 |
| 2019-02-19 | 21,461,000 | -4,295,000 | -1 | 92.86 |
| 2018-02-23 | 11,758,751 | -3,854,573 | -14 |
- Average operating margins: 3.3 %
- Average operating margins growth rate: 14.2 %
- Coefficient of variability (lower numbers indicate more stability): 328.5 %
Since both Tesla's gross margins and operating margins tend to be positive, we know that its business is currently profitable. However, it's important to take into account their variability and overall growth trend to make a definitive conclusion regarding the company's strength.
Our final point of analysis is Tesla's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for Tesla is as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 14,724,000 | -7,172,000 | 21,896,000 | 21.57 |
| 2022-02-07 | 11,497,000 | -6,514,000 | 18,011,000 | 96.09 |
| 2021-02-08 | 5,943,000 | -3,242,000 | 9,185,000 | 139.07 |
| 2020-04-28 | 2,405,000 | -1,437,000 | 3,842,000 | -13.02 |
| 2019-02-19 | 2,098,000 | -2,319,000 | 4,417,000 | 9.86 |
| 2018-02-23 | -60,654 | -4,081,354 | 4,020,700 |
- Average free cash flow: $21.9 Billion
- Average free cash flow growth rate: 0.0 %
- Coefficient of variability (lower numbers indicating more stability): 18658119809.1%
Free cash flow represents the money that Tesla can use to either reinvest in the business or to reward its investors in the form of a dividend. Despite the company's recent cash flows being in the green, investors do not currently receive a dividend.
In conclusion, Tesla may be unattractive to investors with a low risk tolerance or a long term investment horizon. Stocks such as these may offer strong returns in the short term, but for now the long term potential of the company is not substantiated -- by the numbers, at least.
