Tesla (Nasdaq: TSLA) lately launched its third quarter earnings, and I have to admit that I’m impressed.
The entire necessary third quarter 2022 numbers impressed me…
First, income got here in at $21.4 billion, for a rise of 55% from the identical quarter final 12 months. That’s some spectacular development.
Second, internet revenue jumped to $3.3 billion, which doubled the $1.6 billion posted within the third quarter of 2021… an excellent greater enhance than income’s!
Third, Tesla generated $3.2 billion in free money circulate for the quarter. Which means working money circulate exceeded cash invested within the enterprise by $3.2 billion.
And eventually, Tesla’s steadiness sheet stays pristine, with $21 billion in money and no important long-term debt.
While you put these 4 issues collectively (development, profitability, free money circulate and steadiness sheet power), you could have virtually all the things that you possibly can probably need as an investor.
However you’ll discover that I stated virtually all the things.
To be a superb funding, Tesla’s inventory continues to be missing two extraordinarily necessary issues…
The very first thing that Tesla shares are missing is a sexy valuation.
This inventory continues to be extremely costly.
Regardless of the share worth being down 40% in 2022, Tesla’s market valuation continues to be a gaudy $660 billion as of this writing.
This ranks Tesla as being the sixth-most-valuable firm on the planet.
Towards this $660 billion market valuation, the $3.3 billion in earnings that Tesla generated within the third quarter doesn’t look so massive.
For extra perspective, think about that the typical analyst earnings estimate for Tesla this 12 months is $4.09 per share.
With Tesla’s share worth of $210, meaning Tesla is buying and selling at greater than 50 occasions earnings.
That’s actually a a lot better valuation than the inventory started this 12 months at earlier than falling 40%, however it’s nonetheless removed from a valuation that I’d be prepared to pay for.
For my part, the most effective perspective at all times comes from evaluating Tesla’s valuation with these of the opposite most worthwhile automakers.
Tesla isn’t just valued as being price multiples of the opposite main automakers, but it surely’s valued as being price as a lot as all of them mixed.
Sure, the world is transitioning to electrical automobiles, however why does the market appear to imagine that Tesla goes to have virtually that whole market?
I don’t imagine that it’s going to.
Each different automaker is rolling out great-looking electrical automobiles as properly. So I believe Tesla’s market valuation vastly overestimates how worthwhile this firm will finally find yourself being.
The second factor that Tesla is missing is the flexibility to belief that its administration is at all times going to be working in the most effective curiosity of shareholders.
Elon Musk is undeniably an unbelievable entrepreneur, however I’ve seen sufficient to know that I don’t need him accountable for my hard-earned funding {dollars}.
From his adventure-selling Tesla shares to fund his Twitter acquisition… to his placing $1.5 billion of Tesla’s money into Bitcoin… to Tesla’s very suspicious acquisition of Musk-owned SolarCity for $2.6 billion… I don’t belief this man to make selections which might be in the most effective pursuits of his shareholders.
With Musk, it’s at all times his agenda first – and that of his shareholders second.
Tesla’s monetary efficiency has stunned and impressed me. However the valuation continues to be far too optimistic, and the person in cost continues to be unpredictable.
There may be much more draw back danger on this inventory than upside potential.
For these causes, The Worth Meter is measuring Tesla shares as “Extraordinarily Overvalued.”
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Good investing,
Jody