Tesla Inc (TSLA, Financial) has recently experienced a notable daily gain of 12.06%, yet over the past three months, the stock has seen a decline of 22.08%. With an Earnings Per Share (EPS) of 3.92, investors are keen to understand if the stock is significantly undervalued. This article delves into a valuation analysis to answer this pressing question and encourages readers to explore the comprehensive analysis that follows.
Company Introduction
Founded in 2003 and headquartered in Palo Alto, California, Tesla Inc (TSLA, Financial) is a pioneer in the sustainable energy and electric vehicle industry. The company not only manufactures electric vehicles but also produces solar panels, solar roofs, and batteries for energy storage. With a diverse range of products including luxury and midsize sedans, crossover SUVs, and plans for more affordable vehicles, Tesla has cemented its position in the market. In 2023, the company delivered over 1.8 million vehicles globally. When comparing Tesla's stock price of $162.13 to the GF Value of $380.7, a measure of fair value, it becomes evident that a deeper analysis is required to understand the company's true valuation.
Summarize GF Value
The GF Value is a unique valuation metric that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor that accounts for the company's past performance and growth, and future business performance estimates. Tesla (TSLA, Financial) is currently considered significantly undervalued according to the GF Value, implying that the stock's future returns could potentially be greater than its business growth, given its current price point.
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Financial Strength
Assessing a company's financial strength is crucial before investing in its stock, as weak financials can lead to a higher risk of loss. Tesla's cash-to-debt ratio stands at 5.01, outperforming 78.02% of its peers in the Vehicles & Parts industry. Overall, Tesla's financial strength receives a robust score of 9 out of 10, indicating a strong financial position.
Profitability and Growth
Investing in profitable companies is generally less risky, particularly those with a track record of consistent profitability. Tesla has been profitable for 4 out of the past 10 years, with revenues of $94.70 billion and an operating margin of 7.81%, surpassing 74.88% of companies in its industry. The company's profitability is deemed fair by GuruFocus standards. Furthermore, Tesla's growth is impressive, with a 3-year average annual revenue growth of 42%, ranking it higher than 94.49% of its industry counterparts. The 3-year average EBITDA growth rate is 48.4%, also ranking highly at 89.94% within the industry.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another method to evaluate a company's profitability. ROIC measures the effectiveness of a company in turning capital into cash flow, while WACC represents the average rate a company pays to finance its assets. Ideally, ROIC should exceed WACC. Tesla's ROIC is 20.15, which is higher than its WACC of 15.65, indicating efficient capital management.
Conclusion
In summary, Tesla (TSLA, Financial) is believed to be significantly undervalued based on the GF Value. The company's financial health is robust, and its profitability and growth metrics are commendable, placing it ahead of many competitors in the Vehicles & Parts industry. For those interested in a deeper dive into Tesla's financials, the company's 30-Year Financials are available here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
