How much is the Tesla share really worth?

<p>All it took to stop the month-long Tesla Rally (NASDAQ: TSLA) was a global outbreak of a deadly disease. After months of accumulating hundreds of percent on relatively little basic news, the TSLA stock has retreated from its highs of $ 968.99 to below $ 730.

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Marketing mania often strikes a chord like a tsunami and then slowly dies one or two drops at a time. I expect TSLA shares to continue to push slowly back to a more reasonable valuation over the next year. I guess the Tesla mania will disappear in a similar way as the bitcoin bubble of 2017 did.

But unlike bitcoin, Tesla shares actually have some inherent value, especially if the company continues to make a profit. But the stock has a 52-week trading range between $ 176.99 and $ 968.99. Calculating the fair value of the TSLA share is crucial in determining where its final equilibrium point will be.

Analysts take TSLA shares

Jefferies analyst Philippe Houchois recently downgraded the TSLA stock, but not because he does not believe in Tesla’s potential.

“However convinced we are of Tesla’s stock opportunity, we still need to value in order to be based on some visibility of market size and potential profitability,” Houchois said in the downgrade note. He rates the TSLA stock as a “hold” with a price target of $ 800.

That price target is based on Houchois’ belief that Tesla will be a big long-term winner in the EV market.

“We continue to see Tesla as uniquely committed to a positive sum game in the EV transition to older OEMs facing tougher strategic choices,” he said.

Bank of America analyst John Murphy is still very skeptical that Tesla has turned any kind of corner to achieve sustainable profitability.

“While TSLA’s management believes that its business has grown to be self-financing, we believe that TSLA’s path to becoming a self-financing entity remains questionable,” Murphy said after raising $ 2.3 billion in capital in February.

Murphy said Tesla’s ambitious growth plans will only require more and more capital as it strengthens its operations. As the business grows, its capital requirements will increase.

Bank of America has an “underperformance” and $ 370 price target for TSLA shares.

Tesla as a vehicle investment

The big debate around Tesla is whether it is a cash cow car share or a high-growth technical stock. Auto peers include General Motors (NYSE: GM), Ford (NYSE: F) and Fiat Chrysler Automobiles (NYSE: FCAU). Let’s take a closer look at these car companies.

The older car manufacturers have an average price-to-revenue ratio of 5.1. They have an average price-to-earnings ratio of 0.53 and an average price-to-sales ratio of 0.345. They have an average price-free cash flow of 6.3.

During the most recent quarter, GM reported a 19.7% decrease in sales. Ford reported a 4.9% decrease in revenue and Fiat reported a 0.5% increase in revenue.

Tesla reported a 2.1% increase in sales. The share is traded at a forward period of 53.9. It has no PEG ratio because it has not been profitable in the last four quarters. Its PS ratio of 5.7 is about ten times higher than the older car manufacturers. Its P / FCF ratio of 60.9 is also more than ten times higher than the other car manufacturers.

But I guess Tesla investors don’t like this comparison much because they say the company is more like a disruptive tech growth stock like Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN) or Alphabet (NASDAQ: GOOG, NASDAQ: GOOGL) .

Tesla as a Tech Play

Facebook, Amazon and Alphabet have an average forward revenue multiple of 29.5 compared to Tesla’s 53.9 multiple. Tesla’s PS of 5.7 is slightly above the large technical average of 5.6. Tesla’s P / FCF of 60.9 is well above the large technical average of 33.6.

Over the past four quarters, Tesla has averaged 21.5% compared to the previous year. Facebook, Amazon and Google have grown by an average of 22.5%.

In other words, Tesla’s growth rate suggests that comparisons with major technical colleagues may be more appropriate than comparisons with car companies. Okay, so be it. Based on that assumption, the TSLA share is roughly in line with technical colleagues based on sales. It is far overvalued based on profit and free cash flow.

By taking an average of Tesla’s 82.7% multiple premium, its 1.7% PS premium and 81.2% FCF premium, Tesla can be overvalued by approximately 55%.

Before I get a lot of angry comments, I do not in any way believe that a $ 326 TSLA stock price target is correct. This is just an exercise that compares the valuation of Tesla with two different groups of peers.

Personally, I think that the fact that Tesla’s overall sales growth has been somewhat negative in the last two quarters makes it closer to its colleagues than its technical colleagues. However, the company deserves to trade for something of a profit premium for car shares if it can continue to grow them.

Last takeaway

At the end of the day, I think it’s hard to find any group for Tesla that makes the stock seem anything but significantly overvalued. But given the mania surrounding the stock and its large outstanding short position, I continue to recommend investors not to short the stock. Instead, just stay on the page.

Wayne Duggan has been a US News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense”, which focuses on investment psychology and practical strategies to surpass the stock market. At the time of writing, Wayne Duggan does not hold any position in any of the above securities.

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