Wicket
Member
Most people would pay minimum of 1.5 PEG (I hate this construction but it does generally give some idea) so 600B$ could be for instance 200B$ in revenue, 10% net margin, and 30x P/E (from at least 20% forward EPS growth and 1.5x). What are the odds Tesla fails to achieve these numbers?
I would mention the optimal way to approach this is to pick the 3 numbers (revenue, p/e, net margin) that have the highest joint probability of being surpassed. So if 200B$ revenue is lower probability than 30x P/E according to your subjective estimate then these can be adjusted suitable to taste (150B$ revenue and 40x P/E) so long as combined it remains 600B$. I often revert to using price:sales numbers for this kind of reason because P/S (say 3x) is equivalent to net profit (10%) * p/e (30x). Often in analysis these two numbers move in opposite directions, for instance a maturing company becomes more profitable and takes more profit but gives up by definition expectations of forward growth, so it can be easier to approximate their combined multiplied value more than their independent ones. Of course a conditional distribution for all of them is the best but that's harder to do.
All of these net to 600B but would have different probabilities assigned:
1) 100B revenue, 15% net margin, and 40x P/E.
2) 150B revenue, 12% net margin, 33x P/E.
3) 200B revenue, 10% net margin, 30x P/E.
In a lower revenue regime, one would expect Tesla is selling more of its premium priced models (higher margin) and fewer of its SR models, as an example.
The question is then which combo is the most persuasive to thinking observers as a bare minimum. As long as TSLA is scraping the bottom of a logical valuation it is obviously a good investment and only gets more challenging as it tilts to more speculative regimes. I often size my position with this logic (downside: minimal, upside: unknown but big, mathematical expectation: high return).