Tesla is difficult to value and the opinions are very strong on both sides of the argument of how TSLA is valued.
The valuation is dropping fast, that is for sure. Given how sales have skyrocketed from nearly zero to $3 billion has dropped the PSR from over 20 on a few occasions to under 10 for this year 2015.
Tesla is losing money as they invest in their business, grow infrastructure, build supercharger stations and provide unparalleled customer service, and build capacity to keep driving down the cost of building a Tesla.
If you look at the long term, in this case 57+ months (since that's how much data we have on Tesla so far), and if we assume sales can keep growing at the rate they are growing, then TSLA will be very cheap in 4.6 years. We could give Tesla a PSR of 2 after 4.6 years, then the stock would easily be a double from it's current levels, which is a 15%+ return per year.
I added the "half-speed" trend line for TSLA to now because it encompasses when TSLA first started selling the Model S up to the peak price for TSLA shares over $290 last summer. If we look at the pace of the trend from the mid-point of that advance, then TSLA is still on track and that level was tested in the recent pullback earlier this year.
The current news about guiding down production from 55,000 units per year to 50,000 together with the recent "hacking success" into Tesla cars, should provide another buying opportunity over the next weeks and months.
Cheers.
Comment
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Here's the view of the updated valuation: Sales are dramatically higher. Margins are still negative: Going from -11% to -15%. Valuation is way down: From 9x's sales to 5x's sales.
Another year and TSLA will be down to 3x's sales or less if it holds this price.
Funding shouldn't be a problem given the product quality, the market acceptance and the gradual build towards an electric car future. It will take 10-20 years or more to get to a meaningful dent in the marketshare. If marketshare goes up, then so will the dominance of Tesla's battery production business.
Here's the model I want to apply to TSLA - is the pattern of MSFT's valuation over time.
timwest
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MSFT is a dangerous long here given the collapse in margins. 4 times sales for a company with margins of 15% puts it in the premium category. (Growth + Margins)*10 = PSR If you get 15% growth + 15% margins = PSR of 3. MSFT is trading at 4 times. Therefore, it is 25% overvalued.
timwest
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Updated the daily version of the fundamental chart here too...
timwest
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Added some more comments... and some PSR rising valuation boxes....
A-shot
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"Another year and TSLA will be down to 3x's " does that mean you will wait a year or until it gets to 3x? also do you believe that it can get back up to 10x valuation?
mazdaki
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Tim, Thanks for providing the Bull case. There is the Bear case which is worth considering.
The stock has exited the extrapolation based on theory into the practicality of meeting expectations and producing product.
The stock will be under pressure to deliver stellar products but the up move on the stock price is capped at the peek.
For now, the stock will move on news and the general market and the general NASDAQ and high flyers will be under pressure as the WEEKLY RSI trend line on NASX/NYA just broke to the downside.
A-shot
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Sorry if i am asking for too much, but i think you have experience. Any similar cases in history?
timwest
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I'll cover a few points in my reply:
How to value "massive growth" is always the hardest part about investing and thinking truly "long term". I just reviewed an account I managed starting in 1988 when I became a series 7 licensed broker. I managed the account until 1994, and then became more of a passive advisor to the account since then. The interesting part is that I put 25% of the account in MSFT in May 1988 (only because the investor wanted only 4 stocks in the account). Well, I watched that position very closely and I already had 2 years of experience watching MSFT at that point in 1988. MSFT is still in the aforementioned account and the cost basis is 1% of the market value, meaning that the stock is up 100 times in value and the dividends are certainly equal to over a 100% return per year (using cost basis as the denominator). The big difference in these investments is that MSFT was profitable throughout its history and therefore makes MSFT easier to "hold" through downside volatility. TSLA isn't profitable yet, nor does it need to be IF it can raise capital to keep driving growth through making the needed investments to maintain an attractive growth rate. So, what I want to do with the next level of analysis is to get MSFT's PSR, Margins, Revenue, data from 1986 to 1999 to fill out the chart. I think TSLA is much closer to the beginning of its growth curve. If TSLA is cranking about 500,000 cars a year in 10 years, what value would you put on TSLA? Assuming they are profitable, that could be any number from $20 billion (half the current value) to $200 billion (5 times the current value). It's not an easy decision to just "buy and hold" Tesla as MSFT was, in my opinion. I think you have to buy TSLA after bad news and exit on Wall Street Upgrades. That's how the market works. ONCE the Model-X is being delivered, then the world will be watching TSLA so closely that it will be hard to take your eye off of the ball. If the Model-X gets great reviews, then TSLA will have a chance to move over $300 in short order and then with some momentum could reach $350 before peaking out.
A-shot
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Enjoyed reading this - something like a A Day of a Stocktrader. I noticed that you see less chance of failure - fan type of thinking? I know you like their cars, frankly, i do too.
Out of curiosity, if one would ask you "if you cant sell any stock for 10 years, which 5 stocks would you buy and hold?", what would they be?
timwest
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I would love to have this kind of conversation more often here at TradingView:
McCormick (MCK)
Green Mountain Coffee (GMCR)
Tesla (TSLA)
Jack-In-The-Box (JACK)
PPH - Drug Stock "holder" (Or ABT, ABBV, LLY)
Intel (INTC)