Today, Tesla Inc (TSLA, Financial) experienced a gain of 6.5%, marking a 3-month gain of 8.19%. With an Earnings Per Share (EPS) (EPS) of 3.53, the question arises: Is Tesla significantly undervalued? In this article, we will delve into the valuation analysis of Tesla, aiming to provide an answer to this question. We invite you to read on for a comprehensive examination of Tesla's market value.
Company Introduction
Founded in 2003, Tesla Inc is a California-based sustainable energy company. It aims to transition the world to electric mobility by manufacturing electric vehicles. Tesla also sells solar panels and solar roofs for energy generation, plus batteries for stationary storage for residential and commercial properties. In 2022, Tesla delivered over 1.3 million vehicles globally.
At its current price of $264.66 per share, Tesla has a market cap of $840 billion. However, according to the GF Value, an estimation of fair value, Tesla's intrinsic value stands at $456.92 per share, suggesting that the stock is significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. This measure is derived from three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at.
Based on the GF Value, Tesla (TSLA, Financial) stock is believed to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Examining Tesla's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Thus, it is crucial to review the financial strength of a company before deciding to buy its stock. Tesla's cash-to-debt ratio stands at 3.97, which is better than 79.98% of 1209 companies in the Vehicles & Parts industry. GuruFocus ranks the overall financial strength of Tesla at 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, usually poses less risk. Tesla has been profitable for 3 out of the past 10 years. Over the past twelve months, the company had a revenue of $94 billion and an EPS of $3.53. Its operating margin is 13.49%, which ranks better than 87.84% of 1225 companies in the Vehicles & Parts industry. Overall, GuruFocus ranks Tesla's profitability at 5 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Tesla's average annual revenue growth is 36.4%, which ranks better than 93.83% of 1183 companies in the Vehicles & Parts industry. Its 3-year average EBITDA growth is 83.9%, which ranks better than 97.17% of 1060 companies in the same industry.
ROIC vs WACC
Another way to assess the profitability of a company is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Tesla's ROIC is 24.6, and its WACC is 17.38.
Conclusion
In conclusion, Tesla's stock is believed to be significantly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 97.17% of 1060 companies in the Vehicles & Parts industry. For a more detailed examination of Tesla's financials, you can check out its 30-Year Financials here.
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