With a daily gain of 2.11% and a 3-month loss of -11.87%, Tesla Inc (TSLA, Financial) currently has an Earnings Per Share (EPS) (EPS) of 3.53. This prompts an intriguing question: Is Tesla's stock significantly undervalued? This article aims to provide a comprehensive valuation analysis to answer this question. We invite our readers to delve into the following analysis for a better understanding of Tesla's intrinsic value.
Company Introduction
Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company. Its mission is to transition the world to electric mobility by making electric vehicles. The company sells solar panels and solar roofs for energy generation plus batteries for stationary storage for residential and commercial properties, including utilities. With a diverse fleet of vehicles, Tesla plans to expand its offerings with more affordable sedans, small SUVs, a light truck, a semi-truck, and a sports car. Tesla's global deliveries in 2022 were a little over 1.3 million vehicles.
At its current price of $251.73 per share, Tesla has a market cap of $799 billion, which is significantly lower than its GF Value of $460.06. This discrepancy paves the way for a more profound exploration of Tesla's value.
Understanding GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value.
According to GuruFocus' valuation method, Tesla (TSLA, Financial) is significantly undervalued. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Because Tesla is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Tesla has a cash-to-debt ratio of 3.97, which ranks better than 79.71% of 1222 companies in the Vehicles & Parts industry. Based on this, GuruFocus ranks Tesla's financial strength as 9 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Tesla has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $94 billion and Earnings Per Share (EPS) of $3.53. Its operating margin is 13.49%, which ranks better than 87.7% of 1260 companies in the Vehicles & Parts industry. Overall, GuruFocus ranks the profitability of Tesla at 5 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Tesla is 36.4%, which ranks better than 93.76% of 1201 companies in the Vehicles & Parts industry. The 3-year average EBITDA growth rate is 83.9%, which ranks better than 97.11% of 1072 companies in the Vehicles & Parts industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Tesla's ROIC is 24.6 while its WACC came in at 17.64.
Conclusion
Overall, Tesla (TSLA, Financial) stock is believed to be significantly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 97.11% of 1072 companies in the Vehicles & Parts industry. To learn more about Tesla stock, you can check out its 30-Year Financials here.
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