Tesla Stock Analysis and Recommendation

Fortune 500 Company: TSLA
Ticker: TSLA
Current Stock Price: $290.71
Market Cap: 49.119B
P/E: 147.58
Dividend/Yield: N/A;N/A
Enterprise Value: 4.93
Beta: 0.96
Stock Split: No
Closing price last five days: $291.21, $287.71, $293.50, $300.10, $290.24
52 week high: $389.61
Book Value per Share: $11.58
Analysts’ Ratings: 4 strong buy, 4 buy, 8 hold, 6 underperform
Target Price: Low of $180 to High of $470, with the average at $317.04
Avg. revenue estimate for next year: 26.85B
Significant news: Tesla is ramping up Model 3 production; Tesla is working on a semi

Buy or Sell TSLA? Recommendation: SELL

I would not recommend investing in this stock. TSLA is currently the most shorted stock on the market: investors are bearish on Tesla, as the CEO Elon Musk has turned it into a cult stock with an unjustifiable P/E and a lot more empty promises at his back than actual delivery. While TSLA has made enough in revenues to make it to the Fortune 500, the company has still yet to make an actual profit. The real story of Tesla is what the company does not say: Tesla is behind on Model 3 production; Tesla’s cash burn may be a huge problem; Tesla’s autopilot has been suspected in the death of driver; Tesla may have to raise more capital before 2018 is out. TSLA’s CEO has a history of making extravagant predictions via social media but has so far shown little ability to back these up. The company’s vision and mission statement have appealed to investors and consumers who believe the company will be a leader in the EV market—but the reality is that TSLA’s production is woefully slow and its competitors will be able to take the lead in the EV market before TSLA ever overcomes its difficulties. TSLA is a cult stock that resembles a pink sheet penny stock in a lot of ways—from the cult of personality surrounding its CEO, to its aura as a speculative play, to its unbelievable promises that have fueled its exponential run-up over the past few years. Reality is about to come back to bite TSLA hard—and that is why hedge funds are shorting it.

The relationship between the value of the stock and the P/E represents the absurdity at which the company is presently priced. With a forward P/E of nearly 150, TSLA is trading at around 6x the average P/E of the Nasdaq—and it has no real earnings to boot and is unlikely ever to have any. The exodus of financial executives from the company in recent months indicates that TSLA is having serious troubles under the hood.

The market cap shows that TSLA is absurdly priced. For a company that has no net profits yet, its value of 49 billion USD makes no sense. Such a market cap should be applied to a company that is actually company of making a profit in the relative ballpark of that figure. Tesla is not only nowhere near making that kind of profit—it actually has yet to make any profit. Its momentum in the stock market has been fueled by speculation and what can only be described as a bubble in the tech sector. This is the sign of a cult stock that will soon have the air let out of its tires. Compared to a care company like Ford, which actually makes a profit, TSLA is way overpriced. While its beta is less than 1, implying that the stock is less volatile than the market, this beta is likely to rise in the coming months as financial pressures rise to the surface and Tesla’s image and brand take a hit from the investigations currently being launched by a number of agencies. For now, investors may like that TSLA has shown less volatility than the market—but it must be remembered that TSLA, like the Nasdaq rose exponentially in all 2017 while volatility was crushed. When the VIX exploded upwards in February of 2018, the market dynamic dramatically shifted. The possibility of a bear market looms over a tremendous bull run that has been supported by QE. But with the Fed set to tighten and interest rates rising, investors have to be careful about buying risk assets at all-time highs. TSLA is one of the riskiest of risk assets: it is an equity that has risen entirely on speculation and social media made promises by a celebrity-type CEO who makes jokes on April Fool’s Day of the company going bankrupt.

TSLA should be avoided. Its market cap is too high for both its actual earnings (which are nil). Its P/E is ridiculously high—like that of other Tech sector darlings, whose earnings do not support the P/E—but this market does not appear to be considering such fundamental issues (at least not at the moment—but it will).

References

TSLA. (2018). Yahoo! Finance. Retrieved from https://finance.yahoo.com/quote/TSLA?p=TSLA