After Tesla Shares Jump 510% In One Year – Is It A Buy?

Back in July I showed you 1 Reason to Avoid Tesla stock to protect your retirement portfolio…

Today, I give an update after it released new quarterly earnings and answer – After Tesla Shares Jump 510% in One Year – Is It A Buy?

You can read the past article in full by using the link above…

But if you don’t want to; here’s a quick recap of what I said back then about avoiding it before we get to today’s update.

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1 Reason To Avoid Tesla

It’s Enormously Overvalued

Normally in these articles I talk about other things like profitability, cash flow, the affects coronavirus is having on a company’s financials, and other things.

But frankly none of those matter with Tesla (TSLA) due to its huge valuation.

As of this writing Tesla is a $286.5 billion market cap electric vehicle company.

This market cap makes Tesla the 16th largest public company in the world.

But just how overvalued is Tesla?

Its current P/E is unreadable because its not earning a profit in terms of net income… The E part of the P/E ratio.

Its current P/CF is 103.5.

And its current forward P/E is 232.6.

The industry average based on the other 6 companies above on these metrics are as follows.

  • Industry Average P/E – even when including Ford’s absurdly high P/E is 104.4.
  • Industry Average P/E – without Ford’s P/E is 20.1
  • Industry Average P/CF – 3.1
  • Industry Average Forward P/E – For the ones that can be measured – 10.4.

Tesla shatters these numbers.

Again, we can’t compare its P/E now – or even in the past 5 years – because Tesla’s never earned a net income profit.

It’s P/CF is 32.4X higher than the industry average.

And its forward P/E is 21.4X higher than the industry average.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Tesla even crushes that threshold.

Another way to put this is that in its entire lifetime Tesla’s sold an estimated 1.1 million vehicles worldwide from 2012 to today in the 3rd quarter of 2020.

When comparing this number to the market cap it shows the market is currently valuing Tesla at $260,454 per vehicle it sells.

The highest priced Tesla is around $100,000 at full price… And this doesn’t even exclude costs and expenses through labor, parts, and development to manufacture the car.

And these costs bring Tesla’s margins barely above 0% when it comes to operating profit and free cash flow production…  In the trailing twelve months period its net profit margin is negative 0.6%.

In other words, the market is currently valuing Tesla as the 16th most valuable company in the world and its barely profitable.

I love Tesla vehicles and plan to make it my next vehicle purchase after test driving one earlier this year.

I love Tesla’s mission.

I deeply admire Elon Musk and personally think he’s one of the most important people living on Earth today because of everything he’s building in his various companies.

And I hope he continues pushing, innovating, and succeeding toward his goals of going to Mars and making Earth a better place to live.

But there’s zero chance I’m buying Tesla stock any time soon due to its otherworldly valuation.

I want as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point in a company and the world.

If you’re buying Tesla stock today there’s zero room for error due to its huge valuation.

And this makes it a risky investment today even though its likely to continue transforming the world.

For these reasons I recommend you stay far away from Tesla.

***

This thesis to avoid Tesla continued to play out after it released it most up to date quarterly earnings on January 27th 2021… Sort of.

  • In the last year revenue grew 28% to $31.54 billion.
  • Operating profit exploded from negative $69 million in 2019 to positive $1.99 billion in 2020.
  • Net Profit jumped from negative $862 million in 2019 to positive $721 million in 2020.
  • And free cash flow jumped 158% to $2.77 billion in 2020.

These caused Tesla shares to rocket 510% in the last 12 months.

From $130.11 per share back in January 2020 to $793.53 per share as of this writing in early 2021.

And from late July 2020 when I told you to avoid its stock to today in early February 2021 its shares are up 165%.

Of course, this is fantastic for Tesla and its shareholders.

So, was I wrong for telling you to avoid its stock back in late July 2020?

No.

Because even though Tesla just reported its best quarterly earnings ever… Which partly caused the large share price rise.

Most of the rise came from rampant speculation in its stock.

Don’t believe me… Here’s what Elon Musk himself – the CEO of Tesla – recently said in an internal Tesla email that leaked to the press.

When looking at our actual profitability, it is very low at around 1% for the past year. Investors are giving us a lot of credit for future profits, but if, at any point, they conclude that’s not going to happen, our stock will immediately get crushed like a soufflé under a sledgehammer!

Why did he say this?

Because as mentioned in July, the valuation for Tesla is absurdly high…  And it continues to get even worse.

The recent buying spree in Tesla stock is so crazy that a few weeks ago it gained $60 billion in market cap in one day.

In other words, in one day Tesla stock grew in value by the same amount both Nissan at $20.2 billion and Ford at $41 billion are worth combined.

Even more worrisome about Tesla, famed “Big Short” investor Michael Burry who predicted the Housing Bubble years before it popped and led to the financial crisis in 2007, said this about Tesla recently… 


‘Big Short’ investor Michael Burry predicts Tesla stock will collapse like the housing bubble…

He went on to say… “Well, my last Big Short got bigger and bigger and BIGGER too, Enjoy it while it lasts.”

These quotes are from a recent Business Insider article.

To illustrate this even more… Back in late July when I told you to avoid Tesla stock, its market cap was $286.5 billion.

Now its $775.37 billion only 6 months later.  And its market cap now makes it the 5th largest company in the world…

Ahead of giants like…

  • Berkshire Hathaway
  • Johnson & Johnson
  • Walmart
  • JP Morgan Chase
  • Visa

And others.

Its market cap is so large its now almost 2X bigger than Walmart and its $397.5 billion market cap.

And Walmart did $548.74 billion in revenue in the last 12 months compared to Tesla’s $31.54 billion in that same period.

To top things off its relative valuation metrics are even higher than they were in July because of its enormous stock rise since then.

Its P/E is now 1,509.

Its P/CF is 185.7.

And its forward P/E is 200.

Like I said in the previous article…

I love Tesla vehicles and plan to make it my next vehicle purchase after test driving one earlier this year.

I love Tesla’s mission.

I deeply admire Elon Musk and personally think he’s one of the most important people living on Earth today because of everything he’s building in his various companies.

And I hope he continues pushing, innovating, and succeeding toward his goals of going to Mars and making Earth a better place to live.

But there’s zero chance I’m buying Tesla stock any time soon due to its otherworldly valuation.

This is still true 6 months later.

And for the reason of its continued massive valuation, I recommend you avoid its stock… Because if anything even minor negative happens to Tesla – it could crush its stock like a souffle under a sledgehammer like Elon Musk Said.

Click here to see some of the stocks we recommend to Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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