I asked the guys at 'Interesting Investings' to profile Tesla. The US electric car maker is very popular with individual investors. It is consistently the most traded stock in Ireland on De Giro. Here is their overview of the stock:
When looking at a stock we must look at the business as a whole and the direction it's heading. Looking at the price to pay for the stock of that business comes last.
First, does Tesla as a business offer value in the marketplace? – Absolutely
The product it offers
There is no doubt that Tesla’s vehicles in terms of both functionality and image are far superior. It becomes extremely obvious that a company has a far superior product when it has no marketing division and at the same time there is a huge organic demand for its products. In essences the product by its own merit convinces consumers, without the need for adverts and a salesforce to convince. That is extremely powerful.
Tesla has the first mover advantage. While its consistently pointed out that competition is coming, every other auto maker must start behind Tesla’s lead. Tesla is setting the standard in terms of functionality, style, and self-driving capabilities.
Tesla has the Edison of our time Elon Musk as its CEO. This allows for decisions geared towards innovation to take the lead within Tesla rather than what may be a safer traditional business move. Musk is an engineer that wants to solve some of the hardest problems the world faces.
Tesla has direct access to the world’s largest electric vehicle market China. Most foreign companies must get a Chinese partner to set up in China, however China has granted Tesla permission to set up and to act independently. This is a privilege Tesla has received over all other automakers. This is a massive advantage and fundamental to Tesla supplying electric vehicles to the mass market.
Tesla has now become cashflow positive. For the last decade Tesla has been burning through cash in order to start a company in an industry that is incredibly capital intensive but for the last 3 quarters has generated positive cashflow from its operations. Tesla is beginning to show that its business model and the innovation it provides is becoming sustainable.
While Tesla is a great business, has a fantastic product and a CEO capable of driving innovation that permeates through the company an investor cannot pay just any price even for a great business. At current price levels Tesla does appear to be overvalued through a flurry of excitement around the company at this point in time. The intelligent move would be to place Tesla on a watchlist until its stock significantly came down to give a more favorable margin of safety to the investor.
Tesla is a business that is in pursuit and leading the charge in sustainability and the electrification of self-driving cars. It is a problem that if successfully solved by the team at Tesla will result in enormous capital appreciation of the company. The byproduct of companies solving hard problems by providing effective solutions is a massive capital appreciation. This is the case with Amazon in ecommerce and Apple with the iPhone.
If you are an investor that demands traditional management practice and steady cashflows then Tesla is not for you. But if you are an investor that wants to be part of a business that is pursuing the solution to one of the hardest problems the world faces through innovation with a CEO who has made it his life to solve these problems then Tesla is to be considered, but at the right price.
Above analysis was written by Interesting Investings
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Please note that the above does not constitute a recommendation and there may be errors and omissions.