Home Share Market Is $180 a turning point for Tesla stock?

Is $180 a turning point for Tesla stock?

Happy African American Man Hugging New Car In Auto Dealership

Image source: Getty Images

Tesla (NASDAQ:TSLA) stock has fallen by more than 50% so far this year. But the EV pioneer’s profits doubled to $3.3bn during the third quarter against the same period last year.

What’s more, broker forecasts suggest that the group’s strong growth will continue into 2023 and 2024. Profits are expected to rise by around 40% next year, and by a further 25% the year after.

The combination of rising profits and a falling share price looks interesting to me. Should I consider buying this US stock for my portfolio?

Strong growth

Tesla’s vehicle production rate has risen by 50% over the last year. During Q3, the company produced more than 365,000 vehicles.

To put this in context, Stellantis (which owns brands including Peugeot, Citroen, Chrysler, Jeep and Vauxhall) produced 1,218,000 vehicles during the same period.

Tesla’s plan is to continue to increase production capacity by 50% each year. Right now, the company says it already has the factory capacity to produce 1.9m cars each year. Further expansion is under way.

Broker forecasts suggest that Wall Street analysts are backing CEO Elon Musk’s predictions. Their latest expectations suggest sales rising by 40% to $118bn in 2023.

Is Tesla stock cheap?

So, let’s look at valuation. The obvious option here would be for me to point out that Tesla’s market cap of £485bn is equivalent to the combined market capitalisation of car stocks Toyota, Ford, General Motors, Chinese group BYD (whose largest shareholder is Warren Buffett), Mercedes-Benz and BMW.

From this, I could suggest that Tesla is obviously overvalued. Unfortunately, I don’t think it’s right to resort to such simplification.

Tesla’s rapid growth is being backed by rising profits and good cash generation. Only one other company I’ve listed above — BYD — is delivering similar performance.

The European, Japanese and US firms I mentioned are all expected to report flat or falling profits over the next year or so.

Strong, profitable growth usually deserves a premium valuation. Although Tesla shares currently trade on 44 times 2022 forecast earnings, brokers expect this multiple to fall to 25 times earnings by 2024.

If Tesla’s rapid growth continues, I think the current valuation might be sustainable. But I’m not sure it’s cheap enough to buy.

What would I do?

A few years ago, there was hardly any competition for Tesla in the upmarket EV segment. However, that’s now changing fast.

Manufacturers such as BMW, Volkswagen and Mercedes-Benz are now producing classy and sophisticated electric cars. I suspect that many buyers may choose these models instead of a Tesla.

The firm’s management also concerns me. Chief executive Elon Musk appears to be distracted by Twitter at the moment, following his recent takeover of the social media firm.

My final worry is the share price. I don’t think the stock is crazily expensive these days. But I do still think that several more years of strong growth are already priced in.

If Tesla disappoints the markets at all, I think its shares could have much further to fall.

For me, the risks outweigh the potential rewards at the moment, so I won’t be investing.

Source link


Business News LIVE Today: Latest Business News, Share Market News, Economy & Finance News | Moneycontrol

By Market Capitalisation. Net Sales. Net Profit. Total Assets. Excise. Other Income. Raw Materials. Power & Fuel. Employee Cost. PBDIT. Interest. Tax. EPS. Investments. Sundry Debtors. Cash/Bank. Inventory. Debt. Contingent Liabilities. Screen Crit Abrasives Aerospace & Defence Agriculture Air Conditioners Airlines Aluminium & Aluminium Products Amusement Parks/Recreation/Club Aquaculture Auto Ancillaries Auto Ancillaries -...

Up 50% in 2 months, are abrdn shares a no-brainer buy?

abrdn (LSE: ABDN) shares plunged in 2022, losing around 40% of their value at one point. But in the past two months,...

Taiwan seeks to reassure on TSMC commitment to island despite U.S. investment By Reuters

© Reuters. FILE PHOTO: The logo of Taiwan Semiconductor Manufacturing Co (TSMC) is pictured at its headquarters, in Hsinchu, Taiwan, January 19, 2021....


Please enter your comment!
Please enter your name here

Most Popular

Khashoggi killing: US federal court dismisses lawsuit against Saudi Arabia prince Mohammed bin Salman

Washington: A US judge, on Tuesday (local time) dismissed the lawsuit against Saudi Arabia`s crown prince Mohammed bin Salman over the killing of...

Report: FTX Co-Founder SBF Retains White-Collar Lawyer Who Represented Ghislaine Maxwell – Bitcoin News

On Dec. 6, 2022, the former FTX CEO Sam Bankman-Fried (SBF) reportedly retained the attorney Mark Cohen, the lawyer that represented Ghislaine Maxwell...

Meta expected to face new fines after EU privacy ruling

A file photo of The Meta logo on smartphone in front of logo of Facebook, Messenger, Instagram, WhatsApp, Oculus. | Photo Credit: Reuters Meta...

Dana White called Cameron Saaiman ‘the future,’ and he wants to prove it at UFC 282

Dubbed by UFC president Dana White as "the future" of the sport, 21-year-old Cameron Saaiman (6-0-0) is on a mission to prove him...

Recent Comments