P/E ratio - future TSLA valuations

[Buckminster]

Care of @Blue horseshoe :

Using EPS (GAAP) we had a trailing twelve month (ttm) EPS of $1 and a corresponding 658 P/E (rounding up TSLA's share price at market close of $658 and ignoring AH). With Q2's $1.02 EPS (GAAP) the ttm EPS was $1.92 and a corresponding 342 P/E.

If Tesla grows EPS by 15% in Q3 and Q4 we should see EPS of $1.1 and $1.35 resulting in an end of year EPS (ttm) of $3.93.
With a ttm EPS (GAAP) of $3.93 here are some share prices we could see using P/E at end of year:
658 P/E = $2,585
342 P/E = $1,344
200 P/E = $786

Bear case: EPS freezes at Q2 rates of 1.02 for Q3 and Q4. That would result in EPS (ttm) at end of year of $3.45.
With a ttm EPS (GAAP) of $3.45 here are some share prices we could see using P/E at end of year:
658 P/E = $2,270
342 P/E = $1,180
200 P/E = $690

Also, since I prefer P/S ratios here is some revenue numbers:
Q2 to Q1 saw a 15% increase. If Tesla continues on that trend we should see Q3 13.8B and Q4 15.9B (rounded) for a total of $52.1B in revenue for 2021.
At a 20 P/S ratio the corresponding price would be: $1,082.

Of note, Elon's Stock Based Compensation anticipates his next tranche to likely be accomplished and the corresponding revenue number they need to hit is $55 billion.

Blue Horseshoe likes TSLA and reiterates $1,000+ for TSLA by year end.

 

[Buckminster]

Haha - 10 months on, we have gone from 658 to 88...

 

[Buckminster]

I like his logic !

View attachment 840868

 

[Buckminster]

https://twitter.com/x/status/1593292377116098560

 

[Buckminster]

https://twitter.com/x/status/1596195679545819143

 

[Buckminster]

https://twitter.com/x/status/1600264173555834881

 

[Buckminster]

https://twitter.com/x/status/1606168481321390080

 

[Buckminster]

Ratio

https://twitter.com/x/status/1607870476596150273

 

[Buckminster]

Good analysis here:

What is a fair P/E ratio for Tesla?

Earnings growth and earnings resilience

fallacyalarm.substack.com

Suggests 50-60 as fair.

 

[Buckminster]

I am bullish on NVDA but to compare against TSLA:

P/E ratio - 156 versus 53
Market cap - 675 versus 599
1 main product type (which Tesla could disrupt with Dojo) versus many

 

[Buckminster]

What matters most is where TSLA goes from here. The Q1 earnings results matched analyst expectations, but the new reality of Tesla willing to trade margins for volume splits investors into two camps:

The Dead Money Camp
With a strong possibility of declining Auto Gross Margins in future quarters, this camp consists of traditional analysts and fund managers who use AGM and deliveries to compute profits and then use P/E (profit to earnings ratio) plus a growth component to compute the value of the stock. These types are more concerned about TSLA in the future than the recent analyst downgrades suggest. Analysts are for the most part chickens and they'll let someone else stick their neck out while they make predictions that respond to the stock price. In their mind, if AGMs are decreasing, so will the P/E ratio, and for a long time, possibly years, money invested in TSLA will produce no positive returns. They're ready to follow the herd by lowering their price targets to move closer to the stock price any time Tesla lowers vehicle prices again or delivers a smaller profit in an ER.

The Brilliant Future Camp
The other extreme is entities that see Tesla's enormous lead in manufacturing plus EV and battery technologies. They typically realize that Full Self Driving will eventually become a significant marketable asset. They follow Munro and Associates and realize that the $25K EV of the future will be coming in a few years and with decent margins. The lead here is ARKK Innovations, which has recently given TSLA a $2000 price target for 2027. You also have more traditional analysts such as Alex Potter with his $300/share target. These optimists see Tesla's future as very bright with a short to medium term hurdle as buyers endure higher interest rates plus fear of a recession.

Inevitable Volatility
With two completely different expectations for TSLA's valuation, you can expect increased volatility. When the stock price is moving down, sentiment gravitates to the deal money camp, and when the stock price is rising, sentiment changes into FOMO and a more serious look at the brilliant future camp thesis.

Factors Favoring the Dead Money Camp
* Every Tesla vehicle price cut leads to recomputed P/E ratios and recomputed lower price targets that more closely match the resulting TSLA price decline
* Every AGM decrease in an ER
* Projections of Tesla delivering less than 1.8-2.0 million vehicles in 2023
* Tesla stock price decreases for all reasons
* Continued interest rate increases by the Fed (because this means more consumer fear as well as higher financing costs for new vehicles)
* A recession (because people buy fewer vehicles in recessions)
* Anything that gives the impression that TSLA is toxic (Elon over-the-top comments, stock sales by Elon, etc.)

Factors Favoring the Brilliant Future Camp
* Higher than expected Tesla vehicle deliveries
* Any price increases or a long period of time before next price cuts
* Growing Tesla Energy revenues and margins
* Factors that show that dropping AGMs will not necessarily drop profits proportionally. Tesla Energy contributions is one input, realizing approx $600 million in deferred revenue in 2023 (including deferred FSD income) is another.
* Cybertruck deliveries beginning on time (before end of Sept.)
* Progress with 4680 cell production by Tesla
* Progress realizing IRA payments for Tesla-produced batteries and cells
* Interest rates topping out and then declining
* A long or sizeable recession being avoided by Darth Powell cutting rates soon enough

Factors to Watch
* Progress with FSD. I am a beta tester and see a noticeable improvement with Ver. 11, but with exceptions. Some of the exceptions include navigation regressions, but I see these as manageable issues while the big issues are tackled. I'll report perception changes in my experience going forward.
* Interest rates and the economy
* Pace of deliveries
* Speed at which 4680 cell production is speeding up

Special Considerations for Retired TSLA Investors
* I need revenue from my IRA to continue my retirement. The problem is that I've been invested only in TSLA and we could see a potentially-sizeable dip between now and the time the economy starts improving or FSD starts showing its inevitable promise. My solution has been to over time increase my cash or cash-equivalent balance so that I am not in need of selling any Tesla holdings for the next three years. The majority of my Tesla investment will remain. For deep in the money call options, I will be concentrating on 50-strike calls with expiration dates in 2025.

 

[Buckminster]

https://twitter.com/x/status/1655218429236846594

 

[DarkandStormy]

Suggests 50-60 as fair.

Current FY2023 EPS estimate average is $3.08.

So $154-$185 range, on a slightly forward EPS basis, using 50-60x.

 

[Buckminster]

https://twitter.com/x/status/1661671859484610560

 

[Buckminster]

https://twitter.com/x/status/1663839431294349313

 

[Buckminster]

https://twitter.com/x/status/1679579764149960705

 

[Buckminster]

That's because P/E is the wrong metric to use to determine the market value of a company growing at 50% per year: (it's all about the PEG ratio for growth companies)

View attachment 961916

P/E is for old, static companies past their growth phase. That's not Tesla. That's also why bears try to lowball Tesla's future growth, so they can lowball its value via PEG ratio.

See the bear method? It won't matter for TSLA long investors; the singularity is coming.

Cheers to the PEG!

So much wrong with this. I’m not sure where to start.

I don’t think it’s a “terrible take” to assume a company who grows earnings from $4-$7 in 12 months is worth a PE of 80 or 100 (see Peg ratio.)

High growth in stable industries like energy tend towards higher PE’s due to the reliability and robustness of those earnings and the megapack business is currently going gangbusters.

There are numerous ‘catalysts’ that could send us higher (or lower) but to assume that this stock will be caught up in PE compression pergatory that you describe, based on the analysis you demonstrated above, may be the actual “terrible take”.

 

[Buckminster]

https://twitter.com/x/status/1694068707792752881