With a daily gain of 3.48% and an Earnings Per Share (EPS) of $3.53, Tesla Inc (TSLA, Financial) seems to be an attractive investment. However, our GF Value analysis suggests it could be a potential value trap. This article offers a detailed examination of Tesla's financial health, profitability, and growth prospects to help investors make informed decisions.
Company Overview
Founded in 2003, Tesla Inc (TSLA, Financial) is a California-based sustainable energy company that aims to transition the world to electric mobility by producing electric vehicles. With a diverse fleet of vehicles including luxury and midsize sedans, crossover SUVs, and future plans for more affordable sedans, small SUVs, a light truck, a semi-truck, and a sports car, Tesla is a pioneer in the electric vehicle industry. Despite its current stock price of $269.06 per share, our GF Value estimates the fair value to be $448.91, suggesting a possible value trap. The company's market cap stands at $852.8 billion, with sales reaching $94 billion.
Understanding GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and estimates of future business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to our calculations, Tesla (TSLA, Financial) could be a possible value trap. The current price of $269.06 per share and the market cap of $852.8 billion suggest caution. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before investing. Tesla's cash-to-debt ratio of 9.9 ranks better than 86.53% of companies in the Vehicles & Parts industry, suggesting strong financial health.
Profitability
Profitable companies pose less risk, especially those with consistent profitability over the long term. Tesla has been profitable for 3 out of the past 10 years, with an operating margin of 13.49%, ranking better than 88.12% of companies in its industry. However, its profitability score is 5 out of 10, indicating fair profitability.
Growth
Company growth is closely correlated with long-term stock performance. Tesla's 3-year average annual revenue growth rate is 36.4%, ranking better than 93.69% of companies in its industry. The 3-year average EBITDA growth rate is 83.9%, which ranks better than 97.36% of companies in the Vehicles & Parts industry.
ROIC vs WACC
Profitability can also be assessed by comparing the return on invested capital (ROIC) and the weighted average cost of capital (WACC). Tesla's ROIC is 24.72, and its cost of capital is 19.64, indicating a positive difference.
Potential Value Trap
Despite Tesla's strong financial condition and fair profitability, the Beneish M-Score of -1.72, which surpasses the threshold of -1.78, suggests a potential value trap. This score is designed to identify possible earnings manipulation and is based on eight weighted financial ratios. For more information on the Beneish M-Score, click here.
Conclusion
In conclusion, Tesla (TSLA, Financial) appears to be a potential value trap. Despite its strong financial health and fair profitability, investors should think twice before investing. For more information on Tesla's financials, check out its 30-Year Financials here.
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