(Image via motortrend.com)
Business Manager: Julian Cassady
This article is not financial advice
Tesla has been a hot topic for investors for the past five years. The company has grown to epic proportions, expanding across America and overseas.
Although Tesla is now turning a profit and selling thousands of vehicles, the meteoric rise of its stock price does not make sense.
Tesla is massively overvalued, even after losing almost half its stock price over the last year.
As of March 2023, Tesla has a market capitalization of just over $641 Billion.
Market capitalization or market cap refers to the total value of all the stock a company has outstanding. Investors use the market cap to determine whether the company’s stock price accurately reflects its actual value.
Market cap is calculated by multiplying the total number of shares outstanding by the current share price.
So, for example, a company with 100 million shares outstanding with a stock price of $50 per share would be $5 billion.
As of March 2023, Tesla has $3.16 billion shares outstanding, and its stock price closed on March 1st at $202.77.
This would put Telsa’s current valuation at around $640 billion.
At its peak on November 1st, 2021, it was valued at $1.01 Trillion, a valuation equal to every other automotive company combined.
We can further determine if Tesla is overvalued based on its yearly profits and assets.
Tesla only made $721 million in 2020.
In 2022, Tesla grew to $14.1 billion in profits, which is not too shabby, but it’s still only a drop in the bucket compared to its market cap.
By comparison, Volkswagen (the third largest automotive company by market cap) made just over $24 billion in profit in 2022, almost double Tesla, yet Tesla’s value is more than twice Volkswagen’s.
Investors can also look at Tesla’s price-to-earnings ratio to determine if it’s overvalued. The p/e ratio is a metric that compares a company’s share price and its earnings per share (EPS).
A typical tech company has a p/e ratio of 17, which is considered pretty high. By comparison, companies in non-cyclical industries like energy and food have an average p/e of 3-10.
Tesla has a p/e of 56.77.
Tesla’s earnings don’t match its stock price, as shown by its monstrously high p/e ratio.
Many optimistic investors say that Tesla’s value is derived from its future value and growth.
Some investors believe that the stock price is justified, but I disagree based on the facts presented in the dirty numbers.
Although I consider Tesla to be majorly overvalued, I am not discounting that they are a new car company that managed to do what many others failed: to create a successful electric car brand.
Following Tesla’s investors’ day on March 1st, Tesla’s stock price fell more than 5% in after-market trading. This may result from investors becoming weary over Tesla’s uncertain future trajectory.
It will be interesting to see what the future holds for this company.
Will Tesla continue its ascent into the automotive industry? Or will everything spiral down as investors become privy to the cracks in Tesla’s business?
One thought on “Tesla Stock Is Still Overpriced – Here’s Why”
Great article Julian!
Many people followed the herd in investing in Tesla. Other manufacturers are offering more value and flexibility in EV styles. Lithium Ion Battery manufacturing is growing very rapidly and all of the major auto companies are innovating. Watch out for your portfolio.