Despite a daily gain of 5.63% and a 3-month gain of 26.8%, Tesla Inc (TSLA, Financial) is currently trading at $227.62 per share, with an Earnings Per Share (EPS) of 3.53. This article aims to explore whether the stock is significantly undervalued. In the following analysis, we will delve into various aspects of Tesla's financial performance and intrinsic value to provide a comprehensive valuation assessment.
Introduction to Tesla Inc (TSLA, Financial)
Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company. It aims to transition the world to electric mobility by producing electric vehicles. The company sells solar panels and solar roofs for energy generation, along with batteries for stationary storage for residential and commercial properties. With multiple luxury and midsize sedans and crossover SUVs in its fleet, Tesla plans to expand its offerings to include more affordable sedans, small SUVs, a light truck, a semi-truck, and a sports car. In 2022, Tesla delivered over 1.3 million vehicles globally.
As of August 21, 2023, Tesla's stock price stands at $227.62 per share, with a market capitalization of $722.50 billion. However, the GF Value, an estimation of the stock's fair value, is $453.55, suggesting that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the stock's fair trading value. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past performance and growth.
- Future estimates of the business performance.
According to the GF Value, Tesla's stock appears to be significantly undervalued. If a stock price 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.
Given Tesla's current market position, the long-term return of its stock is likely to be much higher than its business growth, as the stock is significantly undervalued.
Financial Strength of Tesla
Before investing in a company's stock, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss for investors. A good way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Tesla's cash-to-debt ratio is 3.97, which is better than 80.22% of companies in the Vehicles & Parts industry. Overall, Tesla's financial strength is rated 9 out of 10, indicating strong financial health.
Profitability and Growth of Tesla
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Tesla has been profitable for 3 out of the past 10 years. Over the past twelve months, the company had a revenue of $94 billion and an Earnings Per Share (EPS) of $3.53. Its operating margin is 13.49%, ranking better than 87.88% of companies in the Vehicles & Parts industry. Overall, the profitability of Tesla is ranked 5 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. Tesla's 3-year average annual revenue growth is 36.4%, which ranks better than 93.65% of companies in the Vehicles & Parts industry. The 3-year average EBITDA growth rate is 83.9%, ranking better than 97.26% of companies in the Vehicles & Parts industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) is another way to assess its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Tesla's ROIC is 24.6, and its WACC is 19.43.
Conclusion
In conclusion, Tesla's stock appears to be significantly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 97.26% of companies in the Vehicles & Parts industry. To learn more about Tesla's stock, you can check out its 30-Year Financials here.
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