Tesla – TLSA stock – is overpriced. No shocker there as many trade TSLA for its speculative nature. But, what is TSLA stock worth from a value investor perspective? Given normal metrics, measured revenue growth, and forward P/E metrics, what is an appropriately price TSLA stock?
While it is simple to put together market metrics that would show what a value investor would pay for TSLA stock, Tesla stock is highly speculative and trades outside normal value investor metrics. But, Tesla does have value. This is a function of what value is looked at and what to expect from an investment in TSLA stock.
In the meantime, revenue growth missed as well as earnings. This tanked TSLA stock. How much further would TSLA stock move because of the misses and what would be a sane buying price for TSLA stock?
Tesla TSLA Stock
Trading TSLA involves setting aside rational methodology. Again, TSLA stock is speculative. TSLA stock sits well outside rational metrics and trades at whims. But, reality is catching up to TSLA stock – especially after the latest earnings release where there were misses in revenue and earnings. Traders are still likely to step in and buy TSLA stock despite the misses. Tesla stock is likely to rebound some. But, value investing principles are easy to apply and show that TSLA stock does have value despite its reckless abandon of value investing principles.
Revenue
Here we can see the revenue print for Tesla for the Q3 quarter, 2023. Expectations were for ~$24.5B in revenue – Tesla missed by some 3.50%. And, revenues are not expected to rebound as much moving forward. This is hampering the stock price as TSLA stock rebounds to its new levels.
Projected Revenue
Tesla’s projected revenues are now pushed downward for 2023 to ~$97.3B. Still, 2024 is expected to grow with both units sold and revenue. But, this is an ‘all-else-equals’ projections where the economy continues to move forward at the current pace. Many, including myself, do not see the economy continuing its stride in to 2024. My expectation is that interest rates are going to have to remain higher for longer and this will affect consumers’ spending. And, the possibility that the Federal Reserve lifts interest rates further during the next few months is increasing with the likelihood that the Fed will forcibly contract expenditures in the US as inflation remains elevated.
This will impact consumers expenditures. But, the normal Tesla consumer is not necessarily burdened too much by higher interest rates. Nonetheless, these consumers are also not immune to the increase in interest rates.
I do not believe Tesla will hit its 2024 revenue goals – I believe analysts need to adjust their future projections.
Net Margins
Another big issue for Tesla this quarter is the drop down to single digits with net margins. The S&P 500 is typically sitting at 8.25% net margins to revenues. With Tesla’s drop down to 7.94%, this places Tesla’s performance at slightly below average.
Projected Earnings Per Share
The Earnings Per Share is what I wanted to focus on because the current price of TSLA stock is already outside of normal bounds for value investing. As mentioned, I do not believe that the US economy will remain on track of its current economic growth. Given that, revenues for companies will contract. Along with that, of course, EPS – and their projections, need to adjust downward. $4.11 is likely not going to occur in 2024 for Tesla.
But, Tesla already does not trade in line with normal projected EPS & valuation models. So, factoring in lower EPS projection may not phase some investors too much.
Price To Earnings Multiple
Normal Price-To-Earnings multiples are roughly 20x. At 80x. this puts TSLA stock at 4x normal multiples. This, alone, is a red flag. Factor in that revenue is not going to grow as much, further factor that revenue will likely contract because of a contracting economy, and with EPS likely to move lower, this puts an investment in to TSLA stock as purely speculative that is fueled beyond rational expectations. Mr. Market does this from time-t0-time as investors play a stock for its ability to move rather than its valuation models.
At a normal valuation – 20x future earnings – this would put TSLA stock down to $85.00 per share. This price was almost achieved at the end of 2022 – 10 months ago.
TLSA Stock
To say that TSLA stock is a stock that negates normal market valuation would be to say that the move lower did not happen. If the economy contracts, if revenues from companies contract and profits decline, TSLA will not be immune to this. The over-valuation of TSLA stock on a price-to-earnings angle will need to adjust further lower along with the future drop in earnings.
If TSLA were to drop its earnings below the $4.11 price, and normal market valuation were to apply to TSLA stock, expect a sub-$100 price for TSLA stock.