Hi I'm Jimmy in this video
I'm going gonna walk through a quick
analysis of Tesla's stock
ticker symbol TSLA.
so I had recently published a video
on my thoughts of Tesla stock
and I did that at the end of April
and a quick synopsis of that video
was basically the Tesla stock is
very difficult to account for the
fair value for because
they're not profitable and they're
not expected to be profitable
in the immediate future.
So it's difficult to use many
valuation techniques on a stock
like Tesla's so for this Tesla
stock analysis I'm trying to focus
more on the facts of the situation
and then we're going to try to
present both the bull
case and the bear case and see if
we can get enough information to try
to make at least a better investment
decision.
Okay so the first chart here is the
chart of revenue and easily this is
the case for the bulls.
Look how fast the revenue chart
has grown but this
chart unfortunately is accompanied
by this chart.
This is a chart of net income and
net income for Tesla's stock
has been terrible over the past few
years although there
is rumors that this could be making
a turn for the positive side.
now on the last video I did on Tesla
stock I got a lot of pushback about
making a big deal about Tesla's
profitability.
Clearly the point was that
revenue is growing profitability
will come don't worry about it as
long as they keep growing everything
will get there and then the stock
is going to explode.
And a lot of that is very true.
But interestingly I saw some people
comparing Tesla stock to Amazon
stock and I guess conceptually
that may be true.
As far as Amazon was
not profitable in the beginning and
then they became very profitable
look at how much how valuable they
are now but also that Amazon
people were saying that Amazon is a
technology company Tesla's really a
technology company not a car company
but I hesitate in calling
them really comparable because they
have very different timelines.
So this is a chart of Tesla's profit
from operations going back to as far
back as I could find from when they
first launched in 2003.
Now they went public in 2010
so they had that was year eight but
they had a few years of historical
data. So that's how I threw that in
there.
And when we add Amazon's profits
from operations along the same
timeline Well you'll notice the big
difference here.
First yes Amazon stock
was way more unprofitable than
Tesla's stock was in the early
years. And I also believe that this
is the theory of what will happen
with Tesla stock and maybe it will
be. But ultimately my hesitation
in comparing Tesla stock to Amazon's
stock is that this happened
for Amazon in year 10.
Right now Tesla's in year 15
and they're not profitable yet.
Now personally I hope that this
what happens to Tesla stock
and then profitability.
In theory if it were to explode at a
similar rate could end up being
just over the horizon.
So that would be great for Tesla
stock now along those
same lines on the bookcase.
This is another chart.
This is a short term chart but this
time we added projections to profits
from operations and as we
could see analyst projections have
Tesla turning profitable fairly
soon and that would be that could
mean a great thing for Tesla
stock. But unfortunately this brings
us to the valuation of Tess's stock.
So what is Tesla stock
really worth.
Frankly it's really tricky
to tell.
In my last Tesla video I used
a somewhat random eevee to Ibadan
down multiple based on what I could
find from analyst projections.
Took an average of them and
frankly that was somewhat difficult
to defend because
how do you value a company that's
not profitable.
That hasn't been profitable for a
long time.
It's a tricky thing to do.
Clearly Tesla's stock is not being
valued based on profits or even
revenue. It's really being valued
based on market expectations and
that's fine. It's happened with many
companies and many of them turned
out very very well.
But I'd like to at least
be able to explain to ourselves why
we paid the price we paid.
If we're going to invest in test
stock today.
So here's one interesting way to
look at So Tesla's stock
is valued right now at about thirty
nine billion dollars. That's their
market cap.
And last year they sold about two
hundred and forty five thousand
cars.
That means that tests and stock
is currently being valued at about
one hundred fifty nine thousand
dollars for every car that they sell
to me.
That's a lot of money to value them.
And if we compare that to a company
like BMW will BMW is
currently valued at about twenty
thousand dollars for every car
that's sold.
So one hundred fifty nine thousand
dollar per car to
twenty thousand dollars per car
and now use BMW as a comparison here
because companies like Ford.
Well they're even worse for the
comparison because Ford
is valued at less than seven
thousand dollars per car sold.
Now I'm sure that some people are
out there saying that Tesla is a
technology company and not a car
company. So that's not a fair
comparison.
And perhaps that's true to
some degree but Tesla
does make a lot of money selling
cars.
So right now more than 80 percent
of their revenue is from selling
cars.
Granted they may be making a better
car and they may be the future
of cars but still their cars.
So now I could easily make the case
for the bullish on the bearish side
of Tesla's stock.
But there is a very bright note
that I think could be very
interesting for Tesla stock first.
Like I said they may be profitable
soon and that's awesome.
That would be a great thing that
would take that right off the table.
But there's something else that
could work just as well in their
favor and that is that this is
a chart of free cash flow.
And if analysts are correct the
green bars our analyst expectations.
Well if analysts are correct it
could be as soon as next year
for Tesla to start generating
plenty of free cash flow to not only
support the growth of their business
but to keep developing
their programs like their robo taxis
or driverless cars because
at the end of the day I recognize
how much research and development
costs all of this is going to
take for them to push things
forward.
And that's actually another aspect
of why I think Amazon and tests
are not that great a comparisons
at the end of the day. One more
concern of one more bright now what
I want to bring out about Tesla
stock. So the concern first of all
this chart this is a chart of Tesla
stock going back the past few years
and the blue line is Tesla's stock
price.
But the red bars those
are stock offerings.
So Tesla in
this example right here.
Well Tesla issued about eight
hundred sixty three million dollars
worth of new stock.
Now this could be a tricky thing for
stock investors because every
time they issue a new piece of stock
or the value of the stock
that's currently out there gets
diluted just a little bit.
So earnings per share would fall.
Free cash flow per share would fall.
And in theory the value of the
overall stock would fall
not the overall value of the company
but the overall value of individual
shares would fall.
And this leads us to the good news
and that is interest rates.
So my concern in the last Tesla
video was that interest rates were
going to continue to rise and
if they continued to rise well
that would make it difficult for all
companies to issue debt
at a good price.
But with now there's talk
about interest rates falling
that could make it much easier
for Tesla to go out and raise money
either via debt or via a stock
issuance because in theory stock
value should be higher because
of falling interest rates
and that could give them the cash
they need to hold them over
while they try to push
profitability.
So I believe that if Tesla can push
profitability if they can get free
cash flow to be as positive
as analysts expectations are.
Well I think that that
could be a great thing for Tesla
stock. Now I do
hesitate to pay the price of Tesla
stock today.
I think it has to be significantly
lower. Last time I said
based on the EV to EBITDA multiple
that it was 200 dollars per share
could be a fair value.
I actually think it's lower than
that. They've issued more debt since
then.
So I think that there's question
marks in place.
And if I owned Tesla's stock today
I'd be sitting and holding if
I don't own it which I personally
don't. Well I get to sit on the
sidelines. I'm rooting for them.
But to me I just can't justify
paying this price.
But what do you think.
Do you think that Tesla stock is
going to be a good buy of
right now.
Do you think it's something that
will turnaround in the next year or
two. Do you think it will take
longer than that.
Let me know what you think of the
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Thank you so much for stick with me
all the way all the way to the end
of the video and I'll see you in the
next video. Thank you.