The disruptive electric automaker trades at a substantial discount to previous highs.
A couple of years ago, many would have laughed if you'd called Tesla's (TSLA 4.90%) stock a good value investment. But after a 64% decline over the last twelve months, the company finally looks cheap relative to its earnings and long-term potential. Let's discuss three reasons why the beaten-down automaker could be an excellent buy for long-term investors in 2023.
1. Elon Musk-related headwinds look overblown
Like many companies, Tesla faces significant near-term challenges like inflation and rising rates, which increase the cost of capital and hurt growth stock valuations. Investors may also be concerned about the activities of the company's CEO, Elon Musk, who purchased social media company Twitterfor $44 billion in October.
In 2022, the billionaire sold a whopping $23 billion worth of Tesla stock to help fund the acquisition. But while stock sales can hurt a company's price in the near term, this shouldn't mean much for fundamental-focused investors. Unlike equity dilution, where new shares are created, the sale of already-existing shares doesn't impact Tesla's value relative to its earnings or cash flow. While some believe the Twitter acquisition is a distraction for Musk, this fear also looks overblown.
Tesla has come a long way from the spiraling losses that almost forced it to the brink of bankruptcy in 2008. Now that the company is well-capitalized and sustainably profitable, one man's managerial skill and tenacity are arguably less important to its continued success.
2. Epic profitability
Tesla is becoming a profit machine, standing head-and-shoulders above its peers in the automotive industry. In the third quarter, total revenue jumped 56% to $21.45 billion while net income doubled to $3.29 billion. Tesla's largest rival, Toyota (which still mainly produces gasoline-powered cars), only generated $3.15 billion in the corresponding period despite selling seven times more vehicles, according to Nikkei Asia.
Nikkei Asia believes that Tesla's edge comes from its strong brand, which allows it to charge a premium for its vehicles. The company's narrow focus on EVs also gives it a streamlined production process compared to traditional automakers, which produce a wide variety of electric, hybrid, and gasoline-powered vehicles.
Image source: Getty Images.
Some industry watchers believe Tesla's business is slowing after a series ofprice reductions in China,a move the company's vice president for external relations in China credits to "innumerable engineering innovations." Investors should remember that the price cuts come amid a broader (and likely temporary) auto industry downturn amid high inflation, high-interest rates, and consumer confidence.
Tesla's management remains optimistic for the long term, expecting vehicle delivery growth averaging 50% annually over a multi-year horizon.
3. A relatively cheap valuation
After many years when the stock was arguably overvalued, it's understandable that many investors still look at Tesla with a little side eye. In early January, well-known value investor Bill Miller announced his short position on the company, telling CNBC that he doesn't "think it's worth more than the top five automakers in the world combined." But while Tesla's market cap of $360 billion is high, that only tells one side of the story.
As a pure-play electric automaker, Tesla should be valued differently than traditional automakers that are transitioning to the technology. That's because Tesla enjoys "pure" growth in the EV industry, while its rivals are cannibalizing their existing products with electric alternatives, a strategy that could cost them total market share over the long term. And as mentioned earlier, Tesla enjoys above-average profits.
With a forwardprice-to-earnings multipleof just 23, Tesla is no longer an expensive stock by any stretch of the imagination when considering its growth rate. That number is significantly lower than theNASDAQ average of 25, and falls behind mature value stocks like McDonald'sandCoca-Cola, which both boast forward multiples of 26 and 25, respectively. It's hard to see the shares staying this cheap for very long.
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
FAQs
For 2023, Tesla EPS fell 23% to $3.12 while revenue increased 19% to $96.77 billion. In 2024, Tesla's "vehicle volume growth rate may be notably lower than the growth rate achieved in 2023 "as our teams work on the launch of the next-generation vehicle at Gigafactory Texas," according to the company.
Is Tesla a buy or sell right now? ›
Tesla is a Zacks Rank #5 (Strong Sell). The Zacks Rank is based on changes to analyst earnings estimates. It has a Zacks Strong Sell recommendation due to the cuts to the earnings estimates.
Why is Tesla doing bad in the stock market? ›
Tesla's market capitalization peaked at over $1 trillion in late 2021 and early 2022, before its stock crashed as much as 75% due to deteriorating market conditions and investor unrest tied to Musk's controversial takeover of the social media company now known as X.
Is Tesla a good stock to hold long term? ›
With its 3-star rating, we believe Tesla's stock is fairly valued compared with our long-term fair value estimate. We forecast that Tesla's deliveries will be roughly flat in 2024 versus 1.8 million in 2023.
Will Tesla stock recover in 2024? ›
Ashwath Damodaran Sees a Buying Opportunity in Tesla Stock
I believe that while 2024 could be a tough year for Tesla amid the slowing sales growth and falling margins, the company could see much better days in 2025 and beyond, especially as interest rates revert to more normalized levels.
Will Tesla prices go up or down in 2023? ›
After slashing prices during 2023, Tesla kept cutting prices in 2024, while Model Y inventory discounts continued to swell. After preannouncing the moves in an apparent bid to pull sales into March, Tesla raised Model Y list prices slightly on March 22 in Europe and on April 1 in the U.S. and China.
What is Zacks rating for TSLA? ›
Broker Rating
Tesla currently has an average brokerage recommendation (ABR) of 3.03 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 32 brokerage firms. The current ABR compares to an ABR of 2.97 a month ago based on 31 recommendations.
Is NVDA a buy or sell? ›
What is NVDA's upside potential, based on the analysts' average price target? Nvidia has 14.59% upside potential, based on the analysts' average price target. Is NVDA a Buy, Sell or Hold? Nvidia has a conensus rating of Strong Buy which is based on 39 buy ratings, 2 hold ratings and 0 sell ratings.
Does Tesla pay dividends? ›
Does Tesla pay a dividend? Does it plan to? Tesla has never declared dividends on our common stock. We intend on retaining all future earnings to finance future growth and therefore, do not anticipate paying any cash dividends in the foreseeable future.
Is Tesla in trouble in 2024? ›
Drivers charge their Teslas in Santa Ana, California, March 20, 2024. Tesla is in trouble. Yesterday, the company announced that its profits for the first three months of this year fell by 55 percent from the first three months of 2023. Sales declined by 8.5 percent.
Key Facts. Tesla stock fell by 4.5% to below $170 after Wells Fargo analysts cut their rating on the stock to a sell, dubbing Tesla a “growth company with no growth” and setting a $120 share price target for Tesla, predicting a 30% downslide to what would be the stock's lowest price since Jan. 2023.
Why is Tesla stock price crashing? ›
The drop has been triggered in part by aggressive EV price cuts, narrowing profit margins and a strategy shift that looks to prioritize self-driving technologies over traditional car production in the coming years.
Is Tesla stock predicted to grow? ›
Based on 32 Wall Street analysts offering 12 month price targets for Tesla in the last 3 months. The average price target is $171.99 with a high forecast of $310.00 and a low forecast of $22.86. The average price target represents a -11.37% change from the last price of $194.05.
Is Tesla stock likely to recover? ›
“Tesla first quarter 2024 [is] likely the bottom,” wrote New Street Research analyst Pierre Ferragu in a Thursday report. He expects first-quarter deliveries to come in around 420,000 units, but also expects delivery growth and a recovery in profit margins later in 2024. Investors hope that's the case.
Does Tesla have a bright future? ›
Tesla is clearly playing the long game, as the company aims to increase economies of scale through 2030. Vehicle gross margins are also expected to be below 20% through 2024. While this is a small bump along the road, Tesla's ability to increase operating leverage could accelerate profitability in the next few years.
How much will Tesla make in 2023? ›
Net income attributable to Tesla's common stockholders was nearly 15 billion U.S. dollars, while net loss related to noncontrolling interests amounted to 23 million U.S. dollars in 2023. This was the fourth year the company turned a full-year profit, after reaching that goal in 2020.
Is Tesla a good investment for the future? ›
So far in 2024, Tesla stock has retreated about 28%, but has recently reclaimed its 10-week line and 50-day moving average. With 2023 in the rearview mirror, Wall Street consensus has 2024 Tesla earnings firmly below last year's level. That signals another year of earnings declines for this growth stock.
What is the expected growth of Tesla in 2023? ›
The company's full-year revenue is projected to be $97 billion, up from just $1.7 billion ten years ago. This equates to a compound annual rate of more than 50%, and Tesla's management expects that growth rate to continue until 2030.
What is the potential of Tesla stock in 2025? ›
By 2025 Tesla Stock (TSLA) can reach $500 more than 260% in just 1 year, That's the Power of Tesla! To figure out what might happen to Tesla's stock in the future, we use a mix of smart analysis and some good guesses.
