Tesla Inc (TSLA, Financial) experienced a daily loss of 7.91% and a 3-month loss of 17.27%. Despite these losses, the company's Earnings Per Share (EPS) stand at 3.53. The question arises: is the stock significantly undervalued? This article aims to answer this question by providing a comprehensive valuation analysis of Tesla (TSLA). We invite readers to delve into the following analysis for an informed investment decision.
Understanding Tesla Inc (TSLA, Financial)
Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company with a mission 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. Tesla's fleet includes luxury and midsize sedans and crossover SUVs, with plans to sell more affordable sedans and small SUVs, a light truck, a semi-truck, and a sports car. In 2022, Tesla delivered a little over 1.3 million vehicles worldwide.
With a current share price of $223.49, Tesla's market cap stands at $709.30 billion. When compared to the GF Value of $460.46, the stock appears to be significantly undervalued. Let's delve deeper into the company's value with a focus on its income breakdown.
Deciphering the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. This value is derived from historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if the price is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $223.49 per share, Tesla appears to be significantly undervalued. Given this undervaluation, the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating Tesla's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. Tesla has a cash-to-debt ratio of 3.97, which is better than 79.58% of 1229 companies in the Vehicles & Parts industry. GuruFocus ranks Tesla's overall financial strength at 9 out of 10, indicating strong financial health.
Profitability and Growth: Key Factors in Tesla's Valuation
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Tesla has been profitable 3 times over the past 10 years. In 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 87.58% of 1264 companies in the Vehicles & Parts industry. Overall, the profitability of Tesla is ranked 5 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. Long-term stock performance is closely correlated with growth, according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Tesla is 36.4%, which ranks better than 93.77% of 1204 companies in the Vehicles & Parts industry. The 3-year average EBITDA growth is 83.9%, which ranks better than 97.03% of 1079 companies in the Vehicles & Parts industry.
Comparing Tesla's ROIC and WACC
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 ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Tesla's ROIC was 24.6 while its WACC came in at 17.95.
Conclusion
Overall, Tesla (TSLA, Financial) stock appears to be significantly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 97.03% of 1079 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
