Quote (S3th @ Jan 19 2022 02:56pm)
lol
post your model
We don't need to do anything too complex. Its market cap is larger than the rest of the top 10 auto-manufacturers combined, it sells a fraction of the cars, and it's barely profitable. We have to bake in gargantuan growth assumptions in both revenue and income to justify its current price level, but the size of the car market itself doesn't lend itself to the required valuations. Its market cap already assumes that TSLA is the largest auto-manufacturer on the planet.
Valuation: We don't know the Q4 2021 results yet, so we'll include the analyst expectation of $1.57, which brings 2021 full year results in at $4.42 EPS. That puts TSLA at 225x present earnings. Let's take TSLA's growth projections at face value, not a particularly smart decision as Elon has been promising us FSD "next year" since at least 2014, and expect that TSLA sees 50%+ year over year revenue growth for a "multi-year" period, and scales income accordingly. Let's see them growing at that pace for 5 straight years.
$4.42 * 50% growth over 5 years = $33.56 EPS reported sometime in January 2027. Let's give TSLA the benefit of the doubt at this point, and assign a P/E that reflects a tech growth company (~30 P/E) and not that of an auto-manufacturer. We'll continue to assume that TSLA's margins remain robust in the face of a more challenging environment (i.e. vehicle price reductions required to continue to continue to grow sales) and increased competition. Neither of those things is assured. We end up with a 2027 price target somewhere in the ballpark of ~$1k. You'd be better off buying treasury bonds and earning a negative real return. Lord forbid that they're ever valued on par with auto-manufacturers, because it would end up as a fraction of that price.
Why can't we assign a higher P/E?: Let's play it out. Map an identical, optimistic scenario and assign a P/E of 100. TSLA's market cap now makes it the most valuable company on earth, and yet with a revenue only ~40% higher than Toyota's 2021 results. What justifies the obscene valuation? Is TSLA going to continue to grow to be bigger than Apple, Microsoft, Google, and Amazon combined? Growth must slow as size and scale increase. There's only so many cars to sell.
Even in the fantastical scenario where we assume that TSLA grows to monopolize the entire existing car manufacturing market by market cap, there's only ~70% upside to current levels. If we assume that they do this over 5 years, which isn't possible given TSLA's own assumptions, that's a year over year return of ~11%. Not bad in a vacuum, but completely unacceptable given that we're receiving market returns in the absolute best case scenario, with implausible assumptions that physically can't hold up, and in anything less than fantastical we're just better off buying and holding SPY or your regular, off the street index fund.
This post was edited by bogie160 on Jan 19 2022 05:11pm