Should you buy Tesla shares? It depends on how far you are willing to look in the future

MarketWatch readers, like investors around the world, don’t seem to have enough information about Tesla and the CEO of eccentric billionaire Elon Musk.

Visitors to this site frequently search for news on the electric vehicle icon as it continues to grow and mature in dynamic technological areas.

But as with so many dynamic stocks that capture Wall Street’s attention, the million dollar question for Tesla Inc. TSLA,
+ 1.89%
is “what have you been doing for me lately?”

This quarterly TSLA stock review aims to go beyond previous performance or flashy tweets from its CEO to analyze the real numbers of this rapidly growing company – and more importantly, how those metrics stack up against the competition.

Where Tesla fits

Tesla is, in many ways, a stock that’s in a class of its own. And even if it didn’t, investors should remember that sometimes it’s not easy to compare apples to apples between a single company and its rivals. Consider this as a reminder to do your own research and make an informed decision based on your individual needs, other news and numbers beyond what is in this recap.

That being said, let’s start with the basics: Tesla isn’t quite the darling momentum it was in years past. And worse, with a 52-week high of around $ 900 per share and a current price in the lows – $ 600, it may be possible to argue that Tesla has not only slowed down but has actually gone downhill. inverted.

It might not be great for bulls to hear, but it’s an important place to start.

Key indicators

There are certainly risks for Tesla, especially given the challenges for automakers in recent times as they continue to grapple with supply chain disruptions caused by the pandemic and the specter of rising prices. inflation continues to be of concern to both policymakers and investors.

Based on recent statistics, however, it’s highly unlikely that Tesla will collapse anytime soon. No stock rises indefinitely in a straight line, but the long-term bullish trend in stocks coupled with some objectively impressive numbers means we can quibble over short-term trends – but you can’t sink TSLA stock.

Assets and cash

Tesla has a market capitalization of around $ 600 billion, more than all of its major competitors combined. In fact, thanks to its inclusion in the S&P 500 Index in December, it is one of the 10 largest stocks in this leading index.


Outside of market capitalization, however, traditional automakers have more tangible assets both when it comes to their massive facilities and liquidity. But as I mentioned in my recent analysis of one of Tesla’s competitors, Chinese upstart EV Nio Inc. NIO,
+ 3.05%,
the challenge for investors here is not to do the math on current assets, but rather to balance those operations with future potential – or the disruptions that would render old factories obsolete. Namely: if General Motors Co. GM,
+ 2.91%
has a bunch of factories that make inefficient truck engines that go up to 20 mpg, it may not be able to sell this equipment for much.

In a fast-paced industry like electric vehicles, investors are willing to pay a premium for a stock they think is dominant on the road – and are increasingly keen to sideline the more established names, no matter what. or their current record.

Sales growth

In previous years, TSLA’s inventory has been supported almost entirely by growth in sales and an increase in the number of vehicles sold. In 2020, the company reached its ambitious Objective of 500,000 vehicles fixed by Musk five years earlier. Tesla believers who bought during these years have been richly rewarded.

In 2021, sales expansion remains impressive, even in light of supply chain challenges, including the recent semiconductor shortage disrupting the automotive industry. Consider that in the first quarter of the fiscal year figures released a few weeks ago, Tesla said it delivered around 185,000 vehicles in total. That’s more than double the previous year – a feat in any environment, but especially one where traditional automakers like Toyota Motor Corp. TM,
+ 0.93%
and Volkswagen AG VWAGY,
+ 3.73%
fought for growth and the F of Ford Motor Co.,
+ 7.05%
sales have declined.

Pricing power and profitability

Although Tesla has seen the number of cars and SUVs sold roughly double, sales as measured by revenue have only grown by around 74%. And taken alongside the significant decline in operating margin year over year, it paints a picture of Tesla earning less money per vehicle as it grows – even though traditional automakers have seen their margins. increase at the same time.

(Set of facts)

To be clear, naysayers have been wringing their hands over Tesla’s profit potential for years, so many bulls are likely to roll their eyes again. After all, Nio is not profitable at all, but still managed to rack up an 877% gain in the stock market over the past 12 months.

However, it is difficult to claim that Tesla and Nio are “equal”. After all, the Bulls love to tout the recent inclusion of S&P and the massive market value of the former … so when does that exactly mean it has to abide by the rules of profitability and margins that mature automakers need to worry about? ?

Based on recent stock price moves, it appears that Wall Street is increasingly concerned about these old school issues when it comes to Tesla and not just ready to give Elon Musk & Co. a pass. free based on vehicle sales only.

Free movement of capital

One area Tesla has shown is making progress is free cash flow. Generating cash flow is a priority for many investors in a high-tech global economy where the time value of money is not insignificant. This is doubly true for a growth-oriented company like Tesla which today needs significant free cash if it is to achieve ambitious operational goals.

Based on the past 12 months, therefore, Tesla has given Wall Street a reason to be encouraged, as free cash flow has not only remained positive, but has increased significantly. That’s a huge plus considering the negative numbers from its peers on this list.


Of course, savvy investors are quick to point out that empty cash flow doesn’t mean much. When you look at the FCF return of TSLA stock, which is calculated by dividing its final cash flow by the current stock price of around $ 600, the metric isn’t as impressive.

It’s positive, it’s a good sign. But for those considering turning TSLA into a highly profitable company with strong operational metrics, it’s also a sign that there’s still a lot of work to be done.

Valuation and performance of shares

As I mentioned in my recent analysis of Tesla’s competitor, Nio, investors often see what they want to see in these metrics. If you’re more traditional and prefer metrics like operating margin and cash flow, Tesla’s current listless stock price may seem appropriate. And if you’re an aggressive growth investor more concerned with the future dominance of electric vehicles than last quarter profitability, you might think Wall Street is once again missing the real story.

Whatever your perspective, it’s hard to argue on this point: Tesla has been one of the fastest growing companies of the past five years. Even if you don’t share the four-digit percentage of profits that some investors have made in this time frame, you should respect the fact that the company has almost single-handedly proven that EVs have mass market potential. .

(Set of facts)

TSLA’s futures price / earnings ratio is 10 times that of its peers. But again, we come back to perspective. If you are just focusing on profits, that might seem too high. But if your goal is future growth, paying a large premium over current operations may not scare you off if you are confident Tesla will measure up.

Wall Street Opinion

That’s the big question mark – whether Tesla will deliver. And based on the most recent numbers, you might be surprised to learn that most people on Wall Street say “unlikely.”


“Smart Money” likes to comment on hot stocks like Tesla, with more than 30 total analysts covering the stock. Analysts on the short side are also relatively bullish in nature, with the typical S&P 500 stock getting 56% of analysts to call it a “buy” based on median ratings.

This makes it even more troubling that TSLA stock only gets a “buy” rating of 41%. When you have dozens of generally optimistic people looking at you, but only four in ten think the future is brighter for you than the competition? This is not beautiful.

The 12-month consensus price target for Tesla is admittedly 16% higher than where the stock closed on May 25, so it’s not as if these analysts are recommending that you run away screaming. But any worthy investor knows that even a 10% gain can look like chicken feed if everyone leaves you in the dust.

– With a report by Philip van Doorn.

About Myra R.

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