Recently, Tesla (TSL) released its third-quarter financial report. Although earnings per share were higher than expected, revenue was lower than expected. Tesla's performance this quarter was mainly affected by a series of problems, including China's supply chain issues, trading of Twitter (TWTR), and inflation , etc.
Tesla's stock price also fell 6.5% shortly after the financial report was announced. Fengzhou Finance believes that the decline in stock prices is the market's normal reaction to Musk's series of remarks on the financial report call, rather than being dissatisfied with his actual financial performance.
日本 Finance believes that the reason why Tesla's stock price fell after the financial report was released was mainly because investors were uneasy about Musk's series of remarks made on the financial report call. These remarks include:
1) admitting that Twitter has paid too much.
2) Not sure whether China's epidemic lockdown will ease. "
3) claims that Tesla's market value will exceed Apple (AAPL) and Saudi Aramco combined and reach $4 trillion. The last one of
may sound optimistic, but you need to consider it in context. Musk himself has always believed that the deal with Twitter is to give Tesla's stock price has brought downward pressure, and many of Musk's supporters have expressed this view, and Musk himself has been selling Tesla stock in large quantities.
In this way, Musk may offset the impact of his own selling of Tesla through speculation on Tesla's stock. On the other hand, Tesla's market value, which Musk posted on the earnings call, will exceed Apple's The sum of the Saudi Aramco and the total of $4 trillion comments may also be to boost Tesla's stock price and then sell it (because he has done this many times).
And then, Musk is likely to complete the acquisition of Twitter by selling more Tesla stocks. This shows that Musk will continue to sell Tesla stocks in the future.
Why Tesla's $4 trillion market value target is a dangerous signal
The reason why Musk believes that setting Tesla's market value to $4 trillion is a red flag, not because this goal is impossible to achieve, but because it shows that Musk urgently needs to pass a The way to "raise" Tesla's stock price. This in turn may mean that he will have more plans to sell. Although this operation of Musk (continue to sell stocks) is not risky for long-term investors, it is risky for short-term and even medium-term investors.
currently owns about 25% of Tesla shares, worth $173 billion, on Twitter er's acquisition price is $44 billion. Musk has sold $32 billion worth of Tesla shares since the announcement of Twitter acquisition, according to Bloomberg. If the acquisition fails, other investors may exit, but Musk will have to sell $12 billion of Tesla shares to complete the deal. This will put considerable selling pressure on Tesla's stock price, which is likely to cause Tesla's stock price to fall further. $12 billion is about the same 1.7% of Sla's market value is equivalent to 60% of its daily trading volume. So, if Musk has to sell Tesla shares then Tesla's stock price will face further downward pressure.
But that's not to say Tesla's market value cannot reach $4 trillion. Tesla's current revenue growth is 60%, if Tesla's growth rate is reduced to one-third of its current level ( 20%), then Tesla still has the potential to become a very valuable company. Tesla's earnings per share for the quarter was $1.05, up 69%. To be conservative, we assume Tesla's growth will slow to 20% over the next 10 years. At this interest rate, the compound interest of $1.05 in 10 years is equal to $6.5. For the full year, it is $26. At a 20x price-to-earnings ratio, we think Tesla's share price will reach $520.Multiply this number by Tesla's $3.063 billion outstanding shares, and the market value reaches $1.59 trillion. This is equivalent to 39.75% of Tesla's total market value. This is all based on the assumption of high growth, but the assumption of high growth is much lower than Tesla's historical growth rate. Therefore, it is not unimaginable that Tesla's market value reaches $4 trillion.
Long-term value of Tesla stock
After analyzing the short-term adverse factors affecting Tesla's stock price, we can now turn our attention to its long-term value. In previous articles, Fengzhou Finance used the discounted cash flow model to find that Tesla's stock price will reach between $750 and $860 (this is before Tesla announced the stock 1-3 plan). Given Tesla's recent financial report and stock split, it is necessary to review Tesla's valuation again.
The tricky thing about modeling Tesla is growth. Because a company's free cash flow is composed of many factors, including income, cash operating expenses, working capital investments, etc. As far as Tesla is concerned, most of these businesses are growing very rapidly. We can build a basic model by conservatively assuming the future where these different businesses will go.
Tesla's revenue growth in the last quarter was 55%. This rate was 60% over the next 12 months. Conservative investors may ask us to lower this number to consider the impact of scale, so we assume Tesla's CAGR for 5 years is 20%.
so that we can get Tesla's operating costs (this fee has dropped by $1.5 billion). It's a good thing to see a cost drop, but we don't expect that to continue, as many companies are cutting spending this year to deal with the recession, so that's only temporary. Therefore, we will not assume that Tesla's costs will continue to decline, but we will assume that Tesla's costs are growing slowly than revenue growth to explain the fact that management is trying to control costs. Assuming Tesla's growth rate is 10%
Finally, we also calculated other factors that affect Tesla's free cash flow: capital expenditure and operating costs. Tesla's capital expenditure growth slowed significantly, while its net working capital fluctuated between positive and negative, so we will assume that these items remain the same as the benchmark period overall. From this, we get the following valuation model:
Calculation Through the model, we concluded that Tesla will eventually have US$72.5 billion in free cash flow, starting from today's free cash flow of US$2.26 per share, which means that Tesla's compound annual growth rate will reach 59.8%. If we assume that Tesla does not grow any more after five years of growth and uses a 6% discount rate, we end up with a target price of $338. At this price, Tesla's market value will exceed $1 trillion, but is far less than $4 trillion. Based on this model, Musk's goal will definitely not be achieved within five years. However, the model does show that Tesla has room for upside, so it may be worthy of long-term investors' attention.
Remember that this is a big risk
As we have seen so far, although Tesla's stock will face some resistance in the short term, it still has great potential in the long run. Whether it is worth investing really depends on the level of your investment—for us, it is only suitable for holding.
If you choose to go long for Tesla, then one of the major risk factors you need to consider is the possibility of supply chain disruption. Although Musk has placed a big bet in China, he not only makes cars in China, but also sells his own cars in China, and Tesla's business in China is also very profitable for the company, but there are risks, such as the epidemic lockdown in China may cause a slowdown in Tesla's Shanghai factory production.
Conclusion
Although Tesla is a great company, even if it assumes Tesla's revenue growth has dropped by more than half, its ultimate value is still higher than today's trading price.Therefore, as a long-term investment, Tesla still has great potential. We are not sure if Tesla's market cap could reach $4 trillion, but we can see that it can reach $1.5 trillion.
However, the situation will be less optimistic in the short term. If Musk continues to acquire Twitter, he may sell more Tesla shares, which will be a catalyst for the decline in Tesla's stock price. For short-term or medium-term investors, this is something to be wary of.
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