As of September 04, 2023, Tesla Inc (TSLA, Financial) reported a daily loss of -5.06%, a 3-month gain of 18.07%, and an Earnings Per Share (EPS) (EPS) of 3.53. But is this stock significantly undervalued? This article aims to answer this question through a detailed analysis of Tesla's valuation.
A Glimpse into Tesla Inc (TSLA, Financial)
Founded in 2003, Tesla is a sustainable energy company based in Palo Alto, California. It aims to transition the world to electric mobility by making electric vehicles. The company sells solar panels and solar roofs for energy generation, batteries for stationary storage for residential and commercial properties, and multiple vehicle models. In 2022, Tesla delivered over 1.3 million vehicles globally.
At a current share price of $245.01, Tesla has a market cap of $777.70 billion, making it a significant player in the industry. However, the GF Value, a proprietary measure of a stock's intrinsic value, estimates Tesla's fair value at $455.84 per share, suggesting that the stock is significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary valuation method that estimates a stock's intrinsic value. It is calculated based on historical trading multiples, an internal adjustment factor based on the company's past performance and growth, and future business performance estimates.
If the stock's share 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, it is undervalued, and its future return will likely be higher. Currently, Tesla's stock appears to be significantly undervalued, suggesting that its long-term return could be much higher than its business growth.
Assessing Tesla's Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength carry a higher risk of permanent loss. A good way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Tesla has a cash-to-debt ratio of 3.97, better than 79.83% of 1210 companies in the Vehicles & Parts industry. Overall, Tesla's financial strength is strong, scoring 9 out of 10.
Evaluating Tesla's Profitability and Growth
Investing in profitable companies carries less risk. Tesla has been profitable for 3 years over the past 10 years. Over the past 12 months, the company had revenues of $94 billion and an EPS of $3.53. Its operating margin of 13.49% is better than 87.86% of 1227 companies in the Vehicles & Parts industry. Overall, Tesla's profitability is fair.
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. Tesla's 3-year average annual revenue growth is 36.4%, which ranks better than 93.81% of 1180 companies in the Vehicles & Parts industry. The 3-year average EBITDA growth rate is 83.9%, which ranks better than 97.16% of 1055 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 evaluate its profitability. 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 finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Tesla's ROIC was 24.6, while its WACC was 19.38.
Conclusion
In summary, 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 97.16% of 1055 companies in the Vehicles & Parts industry. For more information about Tesla's stock, check out its 30-Year Financials here.
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