TSLA Share Price Near All Time Highs… is It Time to Sell?
Is it time to buy Tesla shares?
In 2020 the Tesla stock price stock price was as low as $70 (split adjusted) at one stage….fast forward the clock to today (Nov 12th 2021) and the tsla share price is currently trading $1063. That is a whopping increase of just over 1400% in just over a year.
So that begs the question: is it time to buy or sell Tesla?
Impressive 5 year growth rate:
- Sales have increased from $7 billion in 2016 to $51 billion in 2021. That is an incredible average growth rate of 50.78% per annum.
- Profits have gone from a loss of $675 million in 2016 to a profit of $690 million in the trailing 12 months to Nov 2021.
Forward looking Revenue and EPS growth rates:
- 19 analysts have forecasted sales for 2023 with an average estimate of $85.48 Billion. That’s a 67% increase in just 2 years. Very impressive.
- 19 analysts have forecasted EPS for 2023 with an average estimate of $10.16. That’s a 68% increase in just 2 years. Again, very impressive.
There is no doubt that Tesla is in the high growth phase and is forecast to grow at a significant rate through the next couple of years. But is all of this good news already priced into the stock?
Current Valuations:
- Price to Earnings: The stock has a trailing PE of 345 and is trading at a forward PE of 100 times 2023 estimated earnings.
- Price to Sales: The stock has a trailing P/S ratio of 22.79. The 5 year average price to Sales ratio is 19.44.
As you can see from the above valuations…plenty of good news is already priced into Tesla stock. What about their competitors?
Competitor Valuations:
Comparing Tesla to Ford, Volkswagen, Toyota and others is not ideal as Tesla are still in that growth phase and have first mover advantage in the EV market. Also Ford, Volkswagen and Toyota are established companies with growth rates forecasted below 20% per annum. Tesla deserves a premium but how much premium?
Also, it is important to note that traditional car manufacturers are catching up fast in the EV market and competition is fierce. Therefore, keeping an eye on valuation metrics of Tesla Versus competitors will give you some sense of how much good news is priced into Tesla stock:
- Ford PE is 48. This means that Ford is currently trading at 1/7th the value of Tesla on a PE basis.
- Ford Price to Sales ratio is 0.57. This means that Ford is trading at almost 1/40th of Tesla on a price to sales basis.
Yes Tesla deserves a premium but are the premiums too high now?
Chinese equivalents:
Maybe a better comparison is some of their Chinese competitors:
- NIO trades at a price to sales of 1.84. This price to sales multiple is at a significant discount to Tesla….. 1/10th of its value! NIO is forecasted to grow at similar rates to TSLA over the next 5 years.
- Xpeng trades at a price to sales of 1.17. 1/20th the valuation of TSLA.
- LI trades at a price to sales of 1.76. 1/12th the valuation of TSLA.
Stock Valuation:
- There are 40 analysts covering Tesla. The average target price is $816 which is 23% lower than current levels.
- At some stage Tesla’s growth rate will slow as it gets bigger …. This will warrant lower valuation multiples. Look what happens when we apply more conservative valuation multiples:
- 2023 target EPS is $10.16. Applying a PE of 50 will give us a $500 target price.
- 2023 revenue target is $85.48 billion. Tesla has 1 billion shares outstanding. That equates to sales per share of $85.5. If we apply a more reasonable PS multiple of 5 we get a $425 target price.
Sentiment:
- Tesla has a cult-like following which shouldn’t be underestimated.
- To give you an example, Elon Musk recently sold $5 billion worth of stock. Normally this would cause investors to question why high ranking officers are dumping stock. But his followers on a twitter poll gave it a big thumbs up.
- Tesla at this moment in time can do no wrong. But should the day come when this sentiment changes the drop to more realistic valuations will be swift.
Other recent examples of sentiment change:
- Peloton – Rose from $50 to $150 in less than a year. Currently trades at $50 …down 67% from the recent high!
- Zoom – Rose $200 to $600 in less than a year. Currently trades at $254 …. Down 57% from the recent high!
Whilst these companies are in totally different industries to Tesla, it is important to see what can happen to a stock price when sentiment changes.
Verdict:
The Tesla stock price today is very high and investors have done quite well. Might be time to book in some profits and sell the stock.
Why not take a free trial of our Stock Investor Club and see what stocks we are buying and selling.
Happy Investing
Stephen