Replies to post #15497 on Keeping It Simple

[eastunder]

Tesla Stock Is Plunging, But At Least It's Cheaper, Right? Nope.
ED CARSON06:04 AM ET 04/12/2024

Tesla (TSLA) has had a terrible start to 2024. But Tesla stock hasn't become significantly cheaper, by a key metric.

Often when a stock sells off hard, investors and Wall Street analysts will tout it as a buy, citing much-cheaper valuations.

Tesla stock plunged 29.7% through April 11, one of the worst performers on the S&P 500 this year Shares are 58% below their late 2021 all-time high. But Tesla has largely tracked declining earnings estimates amid weaker-than-expected deliveries despite ongoing price cuts.

Tesla Stock Valuation

 Date	          Tesla stock price  2024 EPS est.  2024 P-E ratio  2025 EPS est. 2025 P-E ratio 
 Dec. 30, 2022	        123.18	          $7.07	         17.4	        $7.93	       15.5 
 March 31, 2023         207.46     	  $5.62	         36.9	        $6.95	       29.8 
 Sept. 29. 2023	        250.22	          $4.68	         53.5	        $6.21	       40.3 
 Oct. 31, 2023	        200.84	          $3.93	         51.1	        $5.54	       36.2 
 Nov. 30, 2023	        240.08	          $3.85	         62.3	        $5.40	       44.5 
 Dec. 29, 2023	        248.48	          $3.79	         65.5	        $5.27	       47.2 
 Jan. 31, 2024	        187.29	          $3.14	         59.7	        $4.38	       42.8 
 Feb. 29, 2024	        201.88	          $3.10	         65.2	        $4.25	       47.5 
 March 28, 2024	        175.79	          $2.87	         61.25	        $3.91	       45.0 
 April 11, 2024	        174.6	          $2.68	         65.1	        $3.70	       47.2

Source: FactSet

Analysts have cut their 2024 earnings per share targets to $2.68 a share, according to FactSet, down from $3.79 at the end of 2023, $5.62 a share at the end of March 2023 and a whopping $7.07 at the end of 2022.

So the forward price-earnings ratio for Tesla stock is 65.1 as of early on April 2. That is up from 61.25 on March 28 but little changed from the end of February or last year. It's above where it was on Sept. 30. It's well above the 2024 P-E ratio of 36.9 back on March 31, let alone the 17.4 P-E ratio at the end of 2022.

The same trend holds for 2025. Analysts have cut Tesla earnings per share estimates for 2025 to $3.7 vs. $5.27 at the end of last year. (Notably, that is now well below Tesla's peak earnings of $4.07 a share in 2022.) Analysts expected $6.95 on March 31, 2023 and $7.93 at the end of 2022.

The 2025 P-E ratio for Tesla is now 47.2, up from 45 at the end of March. That's just below where it was at the end of February and even with Dec. 29. It's up substantially from the 2025 P-E ratio of 29.8 at the end of March 2023 and 15.5 at the end of 2022.

Wall Street is continuing to cut Tesla profit targets following dismal first-quarter deliveries released on April 2. Tesla earnings are due April 23.

Tesla's valuation is far above that of other profitable automakers. Toyota Motor (TM) has a forward P-E ratio of 10. General Motors (GM) has a forward P-E ratio of 4. Among EV players, Li Auto (LI) has forward P-E ratio of 16. EV giant BYD (BYDDF), has a forward P-E ratio of 15.

Ferrari (RACE) is the only one close to Tesla, with a forward P-E of 50.

Investor's Business Daily usually doesn't focus on price-earnings ratios, because many leading stocks boast high valuations as investors bet on strong growth to justify them. During its huge run, Tesla was a growth company with high P-E ratios. But it's not a growth company right now.

Tesla Stock Bull Case
Of course, to an increasing extent, the Tesla bull case is looking beyond 2025, with hopes for a next-generation small EV or even looking beyond electric vehicles. Some analysts, most famously Morgan Stanley's Adam Jonas, ascribe the bulk of their Tesla stock price targets to outside of EVs and for big bets such as self-driving, robotics and artificial intelligence.

Clearly, much or even most of Tesla's current market valuation is a bet that some of those moonshots will pay off down the road, delivering massive profits.

Whether or not they pay off is an open question.

But Tesla stock still isn't cheap.