On July 28, 2023, Tesla (TSLA, Financial) saw a daily gain of 3.88%, with Earnings Per Share (EPS) at $3.53. With these figures in mind, we explore the question: Is Tesla significantly undervalued? This article will delve into a comprehensive valuation analysis of Tesla using the proprietary GF Value measure. We invite you to read on for a deeper understanding of this intriguing subject.
Company Introduction
Founded in 2003 and headquartered in Palo Alto, California, Tesla Inc (TSLA, Financial) is a vertically integrated sustainable energy company. Its mission is to transition the world to electric mobility by manufacturing electric vehicles. Tesla's diverse product line includes solar panels, solar roofs, batteries for stationary storage, and multiple vehicle models, from luxury and midsize sedans to crossover SUVs. In 2022, Tesla delivered over 1.3 million vehicles worldwide.
As of July 28, 2023, Tesla's stock price stands at $265.64, while the GF Value, an estimation of the stock's fair value, is $448.91. This discrepancy prompts a deeper analysis of Tesla's value, integrating key company details with financial assessment.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on three key factors: historical trading multiples, a GuruFocus adjustment factor related to past performance and growth, and future business performance estimates. The GF Value Line on our summary page offers an overview of the stock's ideal fair trading value.
At its current price of $265.64 per share and a market cap of $843.1 billion, Tesla appears to be significantly undervalued according to the GF Value calculation. This suggests that the long-term return of Tesla's stock is likely to be much higher than its business growth.
Assessing Tesla's Financial Strength
Before investing in a company, it's crucial to evaluate its financial strength. Companies with weak financial health pose a higher risk of permanent loss to investors. Key indicators like the cash-to-debt ratio and interest coverage can provide insights into a company's financial strength. Tesla's cash-to-debt ratio of 3.97 outperforms 81.27% of companies in the Vehicles & Parts industry, indicating strong financial health.
Profitability and Growth
Investing in profitable companies tends to carry less risk, especially when the company demonstrates consistent profitability over the long term. Tesla, with revenues of $94 billion and an EPS of $3.53 in the past 12 months, has been profitable for three out of the past ten years. Its operating margin of 13.49% is better than 88.05% of companies in the Vehicles & Parts industry, indicating fair profitability.
Company growth is a crucial factor in valuation. Faster-growing companies, especially those with profitable growth, create more value for shareholders. Tesla's 3-year average annual revenue growth is 36.4%, outperforming 93.69% of companies in the Vehicles & Parts industry. Its 3-year average EBITDA growth rate is 83.9%, ranking better than 97.36% of industry peers, indicating strong growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to assess profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC represents the average rate a company is expected to pay to finance its assets. If ROIC exceeds WACC, it suggests the company is creating value for shareholders. Over the past 12 months, Tesla's ROIC was 24.6, while its WACC was 19.8.
Conclusion
In conclusion, Tesla's stock appears to be significantly undervalued. The company's financial condition is strong, its profitability is fair, and its growth ranks better than 97.36% of companies in the Vehicles & Parts industry. For more information about Tesla's stock, you can check out its 30-Year Financials here.
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