I am neutral on Tesla (NASDAQ: TSLA) as it has a very strong moat, rapid growth momentum, and a compelling technological edge that should serve it well moving forward.
On the other hand, it trades a massive valuation multiple premium.
Tesla is a manufacturer of home power storage and car batteries, solar panels, and EVs. The EV manufacturing company was founded in 2003; the company gained massive following after the release of Tesla Roadster, the world’s first electric sports car.
Its customers are spread across the globe and Tesla has over 70,757 employees in total, according to the 2020 reports. Its factory is located in Fremont, California, and the headquarters are in Austin, Texas.
It is also known as one of the most valuable automakers in the industry that is constantly working toward sustainable, budget-friendly solutions for its targeted customer base.
StrengthsIn 2021, Tesla’s Model 3 became the first electric car to cross the 1-million mark for total units sold across the globe. Innovative capabilities and a niche target audience give this company a greater competitive edge than some its competitors in the industry.
In 2019, Tesla was also named one of the best employers of the year by Forbes, and its employment rate has only increased since then. Highly skilled and talented employees aside, the company is also known as the leading automotive company, after the spike in Tesla Model 3 sales.
The strong brand image and customer-focused approach give Tesla robust brand equity.
Recent ResultsIn 2020, the total revenues generated by Tesla reached $31.5 billion and gross profit reached $6.6 billion. In 2019, these numbers totaled $24.6 billion and $4.1 billion, respectively. The basic and diluted earnings per share finally showed a positive trend since the 2016 results, with $0.74 and $0.64 attributed to them, respectively.
The gross margin also increased to 21% in 2020, compared to 17% and 19% in 2019 and 2018, respectively. The R&D expenses as a percentage of revenues remained consistent between 2019 and 2020 at 5%.
In 2021, TSLA has seen massive growth, with revenues expected to rise by 65.3%, EBITDA expected to soar by 88%, and normalized net income expected to nearly triple.
Valuation MetricsTSLA stock looks richly priced at the moment. Its enterprise value-to-EBITDA ratio is high relative to its history at 63.4x compared to its historical average of 40.7x.
Moreover, its P/E ratio is also very elevated at 111.5x compared to its historical average of 66.4x.
Wall Street’s TakeAccording to Wall Street analysts, TSLA earns a Moderate Buy analyst consensus based on 15 Buy ratings, nine Hold ratings, and six Sell ratings in the past three months. Additionally, the average Tesla price target of $1,028.59 puts the upside potential at 0.2%.
Summary and ConclusionsTesla is a clear global leader in EVs as it boasts best-in-class technology, particularly on the battery front.
It is led by visionary CEO Elon Musk, has finally proven that it can be profitable, is growing rapidly, and it also possesses a compelling advantage in artificial intelligence and autonomous driving technology. The future certainly looks bright for the company.
That said, the stock has soared in recent years which means that the valuation is extremely stretched.
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Cathie Wood, the CEO of investment firm Ark Invest seems to be interested in growth stocks for 2022. According to a tweet, Wood invested in high-growth stocks in the first week of the year while selling shares in EV maker Tesla (NASDAQ: TSLA), DocuSign, and social networking company Twitter.
Notably, Wood has offloaded a massive stake in Tesla since September, selling shares worth $140 million in the last week. Additionally, Ark sold DocuSign shares worth $180 million and $95 million worth of Twitter shares.
Instead, the CEO splurged on growth stocks like Block, Inc. (SQ), Roku, Inc. (ROKU), Sea Limited (SE), Roblox Corporation (RBLX), and Cloudflare, Inc. (NET), with huge investments. The firm is also stacking up shares of U.S.-listed Chinese electric vehicle maker Xpeng, Inc. (XPEV)
Wood’s flagship fund, ARK Innovation ETF (ARKK), focuses on companies with innovative products. The ETF jumped over 152% in 2020, beating the NASDAQ's gain of 43.6%. However, it underperformed the index in 2021, falling 24% compared to the NASDAQ's surge of 21.4%.
"Disruptive innovation is often not priced correctly by traditional investment strategies because people may not understand how big the ultimate opportunities are going to be. They aren't sizing the opportunity and they aren't analyzing the disruption," Wood commented on the company's website.
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