Hey /r/investing,
I am here to point out that at the moment, Tesla is the most undervalued tech/teracap (stocks that are or were once worth $1 trillion) stock measured by price to earnings growth. All the data will be here in this post.
But first, I want to address some folks here who think Tesla is overvalued because the P/E is 189 (which is down from 1,100 at the end of last year due to blistering fast earnings growth and will be under 100 if Tesla doesn't grow earnings from it's Q4 pace) while American automakers like Ford and GM have P/E around 12 and 7 respectively. Be prepared for some data.
Tesla is not like Ford or GM and shall not be valued as such. The only similarity is that a majority of revenue comes from cars. However, Tesla is growing revenue much more like a tech company than a car company like for or GM. Tesla also has much higher margins than Ford and GM, and virtually no debt. They are also already 100% EVs while Ford and GM have to transition their sales to EVs. Here's the data :
Tesla Revenue growth versus tech and cars
Company
Years to grow from $10B to $50B
Years to grow from $10B to $100B
Facebook
4.25 years (2014-2018)
6 years (2014-2020)
Tesla 4.5 years (2017-2021) Estimated ~5.75 years (2017-2023)
Apple
5 years (2005-2010)
6.25 years (2005-2011)
Amazon
5.25 years (2006-2012)
8.75 years (2006-2015)
Google
6.75 years (2006-2013)
10.75 years (2006-2017)
Microsoft
10.5 years (1996-2007)
21 years (1996-2017)
General Motors
17 years (1960-1977)
28 years (1960-1988)
Ford
21 years (1964-1985)
24 years (1964-1988)
Clearly, Tesla is not like Ford and GM if it is growing 4-5x faster than GM and Ford in their heydays. Tesla is growing faster than even its tech company rivals.
Tesla net margin versus GM/Ford
Company
Q4/Q3 Net Margin
Notes
Tesla 15% Added back one time expense of CEO payroll taxes $340M
General Motors
8.9%
Ford
5%
Tesla is 2-3x more profitable than GM/F, and still expanding margins at a rapid pace. What's more, Tesla posted $2.32B in profits in Q4 2021 ($2.67B if you exclude the 1 time $340M payroll tax for Elon Musk's compensation package), while Ford and GM are expected to post ~$1.8B profit each for Q4 2021. Tesla has already surpassed Ford and GM's global profits (not margins, actual $) despite selling a fraction of the cars and still growing rapidly and expanding margins.
Tesla Debt & Cash versus GM/Ford
Company
Debt (short and long term)
Cash
Notes
Tesla $1.4 B $18.967 B Excluded finance/leasing debt, included marketable securities & bitcoin
General Motors
$16.848 B
$ 23.940 B
Excluded finance/leasing debt, included marketable securities
Ford
$24.007 B
$46.426 B
Excluded finance/leasing debt, included marketable securities
Tesla has almost no debt burden compared to the heavy burden at GM/Ford.
Given this data, it is clear that Tesla's peers are not car companies, the peers are tech/teracap companies. Why is this a fair comparison despite the fact that most of Tesla's revenues come from cars, not tech? Some might say Tesla's cars contain a ton of tech and Tesla sells software for the cars and makes large amounts of money from it. I would say just look at the numbers. What industry a company is in does not actually matter for valuation, all that matters is growth, profits, and sometimes debt.
And now what you've been waiting for...
Most people here know that Tesla's price to earnings ratio (stock price divided by earnings/profit per share) is 189 and ~100 (note this is based on GAAP financials) if you take the current earnings annual run rate in Q4 and think that this is astronomical. Well, Tesla's multiple is that high because you will always pay a higher price to earnings multiple for a companies that are growing fast. We can adjust companies forward (next year) price to earnings multiples by how fast they are anticipated to grow their earnings, and I have done exactly that in the table below for Tesla and other tech/teracap stocks:
Company
Stock price
2021 Analyst consensus EPS (Non-GAAP)
2022 Analyst consensus EPS (Non-GAAP)
2022 growth
Forward Price to Earnings
Price to earnings growth 2022
Facebook
$311
$13.94
$14.24
2.15%
21.82
10.14
Google
$2,697
$108.64
$114.13
5.05%
23.63
4.68
Apple
$173
$6.04
$6.51
7.78%
26.64
3.42
Amazon
$2,892
$41.10
$49.41
20.22%
60.35
2.98
Microsoft
$309
$9.37
$10.77
14.94%
28.68
1.92 Tesla $935 $6.78 $10.78 59.00% 86.71 1.47
As shown clearly in the table, Tesla has the lowest price to earnings growth ratio of all the tech/teracap stocks at 1.47. It is true that Peter Lynch, who invented the price to earnings growth ratio, suggested that a price to earnings growth ratio of 1 represents a fairly valued company. However, Peter Lynch suggested that in 1989 when the average 10 year govt bond yield over 20 years was >8% compared to
I am here to point out that at the moment, Tesla is the most undervalued tech/teracap (stocks that are or were once worth $1 trillion) stock measured by price to earnings growth. All the data will be here in this post.
But first, I want to address some folks here who think Tesla is overvalued because the P/E is 189 (which is down from 1,100 at the end of last year due to blistering fast earnings growth and will be under 100 if Tesla doesn't grow earnings from it's Q4 pace) while American automakers like Ford and GM have P/E around 12 and 7 respectively. Be prepared for some data.
Tesla is not like Ford or GM and shall not be valued as such. The only similarity is that a majority of revenue comes from cars. However, Tesla is growing revenue much more like a tech company than a car company like for or GM. Tesla also has much higher margins than Ford and GM, and virtually no debt. They are also already 100% EVs while Ford and GM have to transition their sales to EVs. Here's the data :
Tesla Revenue growth versus tech and cars
Company
Years to grow from $10B to $50B
Years to grow from $10B to $100B
4.25 years (2014-2018)
6 years (2014-2020)
Tesla 4.5 years (2017-2021) Estimated ~5.75 years (2017-2023)
Apple
5 years (2005-2010)
6.25 years (2005-2011)
Amazon
5.25 years (2006-2012)
8.75 years (2006-2015)
6.75 years (2006-2013)
10.75 years (2006-2017)
Microsoft
10.5 years (1996-2007)
21 years (1996-2017)
General Motors
17 years (1960-1977)
28 years (1960-1988)
Ford
21 years (1964-1985)
24 years (1964-1988)
Clearly, Tesla is not like Ford and GM if it is growing 4-5x faster than GM and Ford in their heydays. Tesla is growing faster than even its tech company rivals.
Tesla net margin versus GM/Ford
Company
Q4/Q3 Net Margin
Notes
Tesla 15% Added back one time expense of CEO payroll taxes $340M
General Motors
8.9%
Ford
5%
Tesla is 2-3x more profitable than GM/F, and still expanding margins at a rapid pace. What's more, Tesla posted $2.32B in profits in Q4 2021 ($2.67B if you exclude the 1 time $340M payroll tax for Elon Musk's compensation package), while Ford and GM are expected to post ~$1.8B profit each for Q4 2021. Tesla has already surpassed Ford and GM's global profits (not margins, actual $) despite selling a fraction of the cars and still growing rapidly and expanding margins.
Tesla Debt & Cash versus GM/Ford
Company
Debt (short and long term)
Cash
Notes
Tesla $1.4 B $18.967 B Excluded finance/leasing debt, included marketable securities & bitcoin
General Motors
$16.848 B
$ 23.940 B
Excluded finance/leasing debt, included marketable securities
Ford
$24.007 B
$46.426 B
Excluded finance/leasing debt, included marketable securities
Tesla has almost no debt burden compared to the heavy burden at GM/Ford.
Given this data, it is clear that Tesla's peers are not car companies, the peers are tech/teracap companies. Why is this a fair comparison despite the fact that most of Tesla's revenues come from cars, not tech? Some might say Tesla's cars contain a ton of tech and Tesla sells software for the cars and makes large amounts of money from it. I would say just look at the numbers. What industry a company is in does not actually matter for valuation, all that matters is growth, profits, and sometimes debt.
And now what you've been waiting for...
Most people here know that Tesla's price to earnings ratio (stock price divided by earnings/profit per share) is 189 and ~100 (note this is based on GAAP financials) if you take the current earnings annual run rate in Q4 and think that this is astronomical. Well, Tesla's multiple is that high because you will always pay a higher price to earnings multiple for a companies that are growing fast. We can adjust companies forward (next year) price to earnings multiples by how fast they are anticipated to grow their earnings, and I have done exactly that in the table below for Tesla and other tech/teracap stocks:
Company
Stock price
2021 Analyst consensus EPS (Non-GAAP)
2022 Analyst consensus EPS (Non-GAAP)
2022 growth
Forward Price to Earnings
Price to earnings growth 2022
$311
$13.94
$14.24
2.15%
21.82
10.14
$2,697
$108.64
$114.13
5.05%
23.63
4.68
Apple
$173
$6.04
$6.51
7.78%
26.64
3.42
Amazon
$2,892
$41.10
$49.41
20.22%
60.35
2.98
Microsoft
$309
$9.37
$10.77
14.94%
28.68
1.92 Tesla $935 $6.78 $10.78 59.00% 86.71 1.47
As shown clearly in the table, Tesla has the lowest price to earnings growth ratio of all the tech/teracap stocks at 1.47. It is true that Peter Lynch, who invented the price to earnings growth ratio, suggested that a price to earnings growth ratio of 1 represents a fairly valued company. However, Peter Lynch suggested that in 1989 when the average 10 year govt bond yield over 20 years was >8% compared to