At a $1.2 Trillion Market Cap, Is Tesla Stock Overvalued or Undervalued Right Now?
Key Points
Tesla's price-to-earnings ratio of 357 reflects the market’s extreme optimism about product innovation and financial success.
Investors who choose to buy this “Magnificent Seven” stock today have no margin of safety.
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Tesla (NASDAQ: TSLA) always seems to be in the spotlight. Whether it's product strategy, new promises being made by Elon Musk, or any future ties to the soon-to-be-public SpaceX, the market loves this "Magnificent Seven" enterprise.
At over $1.2 trillion, Tesla has one of the world's biggest market capitalizations. Is the polarizing stock overvalued or undervalued right now?
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The company's shares currently trade at a price-to-earnings ratio of 357. But of course, the market's attention is on what Tesla could possibly become one day. The bulls hope the business evolves into a high-margin autonomous driving and robotics entity whose hardware and software find mass adoption.
According to analyst estimates, Tesla will report adjusted diluted earnings per share of $3.43 in 2028. Based on today's stock price of $391, the shares trade at 114 times that estimated profit figure. This is still a nosebleed valuation with no margin of safety.
Profits would need to skyrocket and be significantly higher in five or 10 years to justify the price tag. There is no guarantee that this actually happens.
So, based on what the business looks like today, which is an electric vehicle maker facing lower growth and stiffer competition, coupled with the high level of uncertainty around progress and commercialization of self-driving technology and humanoid robots, this stock is overvalued.
I'm not surprised, though, that Tesla's strongest supporters have a different view.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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