Tesla (TSLA) is a leading renewable energy and electric vehicle (EV) manufacturing company. While it is best known for its cutting-edge EVs, TSLA is much more. It sells solar panels and solar roofs, energy storage devices, and is starting to venture into cryptocurrency. It also has a massive trove of driving data that it is using to fuel autonomous vehicle technology advancement. In fact, some analysts expect TSLA to leverage its autonomous vehicle technology and large business network across North America to create an autonomous taxi fleet that could dominate this future industry.
Additionally, some expect the company to leverage its renewable energy products and technology to disrupt the utilities industry at some point in the future. Last but not least, TSLA’s electrical vehicle technology is well ahead of the competition, with it boasting a strong market position in the U.S., Europe, and China.
While TSLA has only recently turned profitable after running up massive losses for years, the company is ramping up its production rapidly and should see its profits explode higher accordingly.
Thus far, the results have been terrific as the stock’s returns have crushed the S&P 500’s by 34 times since its IPO. Furthermore, the company’s CEO Elon Musk has earned a tremendous reputation as an innovator and entrepreneur who has assembled an army of leading engineers, with some arguing this will drive exceptional innovation for years to come.
That said, there is a decent bear case to be made as well. First and foremost, TSLA has invested a lot of money in China, but it has run into challenges there. A combination of accidents, protests, and rising competition is eating into its competitive positioning. Additionally, in Europe, the competition is mounting, with it being pushed out of its leading position in that market.
Meanwhile in the U.S., traditional automotive powerhouses like Ford (F) and General Motors (GM) have been investing aggressively to catch up with TSLA on EVs. While they still have a ways to go, they are making significant progress and will likely eat into TSLA’s market share and threaten their market dominance.
Valuation Metrics
Despite these challenges, TSLA will likely remain a leading force in the EV space and its other business domains due to its superior data collection, intellectual property, valuable brand name, and top-notch engineers.
That said, the stock does look extremely expensive here. The price to diluted earnings-per-share is a whopping 626.7x, dwarfing the analyst consensus estimates of 56.5% revenue growth and 104.7% normalized earnings-per-share growth in 2021. Furthermore, revenue and normalized earnings-per-share growth is expected to begin tapering off in 2022 at 35% and 45.9%, respectively. The current share price is 93.5 times expected 2022 normalized earnings-per-share.
Wall Street’s Take
Turning to Wall Street analysts, TSLA earns a Hold consensus rating based on 10 Buy ratings, 8 Hold ratings, and 7 Sell ratings assigned in the past three months. Additionally, the average analyst price target of $645.88 puts the upside potential at just 3.3%. (See Tesla stock analysis on TipRanks)
Summary and Conclusions
TSLA is certainly far from a low-risk company and the stock price appears expensive based on typical valuation metrics. Additionally, Wall Street analysts are overall neutral on the company.
That said, the company has numerous exceptional competitive advantages that should enable it to innovate at a faster pace than its peers. Additionally, a number of analysts have very bullish outlooks on the stock, with one even placing a $1,200 price target on it, which suggests 92% upside potential from current levels.
As a result, Tesla looks like one of the more speculative opportunities in the market today.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.