Tesla Inc (TSLA, Financial) experienced a daily loss of 2.39%, with a 3-month gain of 2.56% and an Earnings Per Share (EPS) of 3.53. Given these figures, the question arises: is Tesla (TSLA) significantly undervalued? This article aims to provide an in-depth analysis to answer this question. Stay with us as we delve into the valuation analysis of Tesla.
Company Introduction
Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company. It aims 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 current stock price stands at $267.82, while its GF Value, an estimation of fair value, is at $457.68, suggesting that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value is a measure of the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded. 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 it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus' valuation method, Tesla's stock is significantly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. With its current price of $ 267.82 per share, Tesla's stock appears to be significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
The financial strength of a company is an essential factor to consider to avoid the risk of permanent capital loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Tesla has a cash-to-debt ratio of 3.97, ranking better than 79.72% of 1223 companies in the Vehicles & Parts industry. The overall financial strength of Tesla is 9 out of 10, indicating a strong financial position.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Tesla has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $94 billion and Earnings Per Share (EPS) of $3.53. Its operating margin of 13.49% is better than 87.52% of 1250 companies in the Vehicles & Parts industry. Overall, GuruFocus ranks Tesla's profitability as fair.
Growth is a critical factor in the valuation of a company. Tesla's 3-year average revenue growth rate is better than 93.67% of 1201 companies in the Vehicles & Parts industry. Tesla's 3-year average EBITDA growth rate is 83.9%, which ranks better than 97.12% of 1075 companies in the Vehicles & Parts industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. 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 17.35.
Conclusion
In conclusion, the stock of Tesla (TSLA, Financial) is believed to be significantly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 97.12% of 1075 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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