Jhm, very interesting perspective. How was PT $3739.82 calculated? Today's market cap is 30.85B with closing price of $244.1 according to Yahoo. If we shooting for 700B in 2025. My calculation of PT in 2025 is (244.1/30.85)*700 = $5538.
Here's how I calculate the longterm target:
MarketCap = 20 PE × 10% profit × $6000M rev2015 × 1.5^10 growth = $691,980 M.
Shares = 125M × 1.04^10 = 185M
SharePrice = $691,980/185 = $3739.82
So I am assume 4% annual share dilution. But actually, that assumption makes little difference because is I made no allowance for dilution, then the implied discount rates would just be about 4% higher. The net effect until shares outstanding increases is basically no different to price targets.
Over time, however, I may need to adjust this probably annually when new guidance comes out for revenue in the coming year and when the the number of shares change. Note that shares are now at 126M, so my assumption of 125M is a little out of date already! Also if Musk should suggest that long-term annual growth will be different from 50% or any other assumption, we would need to make that change too. However, I really don't see him changing this long term outlook much. I actually think Musk is conservative about 50% growth. So year after year as new revenue guidance comes out this could track upward.
Given what has recently come to light about demand for Powerpacks, do we think revenue guidance for 2016 could be greater than $9B, which is just 50% up from $6B guidance for 2015? It seems like it just comes down to how many packs the Gigafactory can pump out next year.
Certainly I welcome recommendations on how to improve tracking the longterm target. Keep in mind that it is just a far off anchor for the whole methodology. It is so far off that if you play around with moving it around by $1000 or so, it does not make a whole lot of difference in near term price targets. This is because the the real action is in the distribution of implied discounts which is all relative to the precise long-term target you assume. The whole point here is that all market participants know that Musk tells a fantastic story of long-term growth, but every participant discounts that vision in their own way. And over time collective discount that the market puts on that vision changes. Meanwhile, Tesla moves along growing revenue by something close to 50% a year as the vision takes shape. So at times that vision will seem more credible and at other times it may seem quite remote. Short term price movements are just the mood swings of the market, the interplay of faith and doubt.
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