Tesla (TSLA) stock climbed 0.3 % this afternoon. According to our metrics, the company seems overvalued at today's prices. In the below analysis, we will put Tesla's valuation in the context of its strong growth indicators and mixed market sentiment, which are also strong drivers for share price.
Tesla, Inc. designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally. The large-cap Consumer Discretionary company is based in Austin, United States and has 127,855 full time employees.
TSLA Has a Higher P/E Ratio Than the Sector Average
Compared to the Consumer Discretionary sector's average of 22.33, Tesla has a trailing twelve month price to earnings (P/E) ratio of 79.5 and an expected P/E ratio of 64.1. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $3.11 or forward earnings per share of $3.86.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Tesla's P/E ratio is higher than its sector average of 22.33, we can deduce that the market is overvaluing the company's earnings.
Tesla Is Overvalued in Terms of Expected Growth
Tesla's PEG ratio is 21.58. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Tesla's case, it tells us the company is overvalued.
TSLA Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Tesla's P/B ratio of 14.71 is higher than its sector average of 3.12, such a margin of safety does not exist for the stock.
TSLA's Weak Cash Flow Generation Is Troubling
The table below shows that Tesla is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Tesla's case, free cash flow is growing at an average rate of 227.7% with a coefficient of variability of 266.1%. We can also see that cash flows from operations are evolving at a 34.0% rate, versus 26.1%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 12,164,000 | 8,450,000 | 3,714,000 | -50.91 |
| 2022 | 14,724,000 | 7,158,000 | 7,566,000 | 50.87 |
| 2021 | 11,497,000 | 6,482,000 | 5,015,000 | 80.01 |
| 2020 | 5,943,000 | 3,157,000 | 2,786,000 | 158.44 |
| 2019 | 2,405,000 | 1,327,000 | 1,078,000 | 36033.33 |
| 2018 | 2,098,000 | 2,101,000 | -3,000 |
Tesla's Is a Profitable Business
If you are looking to make TSLA a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively Tesla is run.
Tesla's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 95,924,000 | 76,925,000 | 20 | -23.08 |
| 2022 | 81,462,000 | 60,609,000 | 26 | 4.0 |
| 2021 | 53,823,000 | 40,217,000 | 25 | 19.05 |
| 2020 | 31,536,000 | 24,906,000 | 21 | 23.53 |
| 2019 | 24,578,000 | 20,509,000 | 17 | -10.53 |
| 2018 | 21,461,268 | 17,419,000 | 19 |
Tesla's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 95,924,000 | 8,271,000 | 12 | -29.41 |
| 2022 | 81,462,000 | 7,197,000 | 17 | 41.67 |
| 2021 | 53,823,000 | 7,083,000 | 12 | 100.0 |
| 2020 | 31,536,000 | 4,636,000 | 6 | inf |
| 2019 | 24,578,000 | 4,138,000 | 0 | 100.0 |
| 2018 | 21,461,268 | 4,430,000 | -2 |
Tesla's cost of revenue is growing at a rate of 28.1% in contrast to None% for operating expenses. Sales revenues, on the other hand, have experienced a 28.3% growth rate. As a result, the average gross margins growth is 0.7 and the average operating margins growth rate is 38.7, with coefficients of variability of 92.0% and nan% respectively.
We See Mixed Market Signals Regarding TSLA
Tesla has an average rating of hold and target prices ranging from $380.0 to $24.33. At its current price of $247.36, the company is trading 9.99% away from its target price of $224.9. 3.4% of the company's shares are linked to short positions, and 44.2% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-09-30 | Vanguard Group Inc | 7% | 225,940,011 | $55,888,497,125 |
| 2023-09-30 | Blackrock Inc. | 6% | 186,653,186 | $46,170,512,266 |
| 2023-09-30 | State Street Corporation | 3% | 104,861,369 | $25,938,497,099 |
| 2023-09-30 | Geode Capital Management, LLC | 2% | 53,875,703 | $13,326,688,172 |
| 2023-09-30 | Capital World Investors | 1% | 41,103,054 | $10,167,247,072 |
| 2023-09-30 | Morgan Stanley | 1% | 30,160,747 | $7,460,559,174 |
| 2023-09-30 | JP Morgan Chase & Company | 1% | 29,419,060 | $7,277,095,557 |
| 2023-09-30 | FMR, LLC | 1% | 29,040,734 | $7,183,512,878 |
| 2022-12-31 | Norges Bank Investment Management | 1% | 28,085,245 | $6,947,163,220 |
| 2023-09-30 | Northern Trust Corporation | 1% | 27,542,824 | $6,812,990,019 |
