The current tailwinds could help Tesla stock reach its local high of $880 per share shortly.
However, long-term investors are interested in the company’s intrinsic value. I show how recent events are affecting Tesla’s business valuation and why I find TSLA fundamentally undervalued.
As for your investment horizon, I suggest you use one of the two recommendations I give at the end of the article.
Drew Angerer/Getty Images News Thesis
Over the past month, Tesla ( TSLA ) has had quite a lot of positive news that could provoke the bulls to run for $860-890 per share in the near future (the local resistance level). However, what is interesting for long-term investors is how this positive news may affect the valuation and whether it is worth buying TSLA in a long-term portfolio.
Many people think that it is pointless to value Tesla with a classical income approach – I do not agree with that. Based on the historical trends, described tailwinds, and Elon Musk’s guidelines, I made a DCF-model, the results of which contradict those who say that “Tesla is insanely overvalued, look at the multiples!”
At the end of the article, I analyze the risks and give 2 recommendations on how short-term and long-term investors can participate in the upcoming rally. What are the current tailwinds?
It’s important to understand that TSLA, like any other meme stock, depends primarily on the latest news, which in theory should determine its near (for some, distant) future. You may object, “Every stock depends on that.” Yes, but usually before buying “every stock” on good news, investors at least open financial statements, look at multiples, compare sales numbers, etc. In other words, they do fundamental analysis. Many readers will roll their eyes at these lines, but I also want to do fundamental analysis, but in a slightly different way than you are used to seeing in the case of Tesla.
The crowd buys the drawdowns because they are primarily focused not on the fundamentals but on the catalysts. So I suggest thinking like this crowd when analyzing the latest news.
What news is the first thing that catches my eye when I open any financial portal dedicated to TSLA?
> Tesla is moving its headquarters to Austin, Texas;
Tesla sold 56,006 China-made vehicles in September, up 27% M/M;
Wedbush Securities named TSLA and ( NIO ) as two of its favorites in the sector;
Tesla tops expectations with Q3 deliveries of 241K;
Tesla Giga Berlin Seeks to Produce 10,000 Cars per Week , Accelerating the Global Adoption of EVs;
Nikola’s $2B patent infringement lawsuit against Tesla was shelved by the judge .
From my point of view, all this news is more than enough to give the bulls more reasons to buy TSLA – this is also confirmed by the sentiment analysis based on social media activities: I cannot read people’s minds, but we see how strong the bulls are right now – this fact can lead to a dizzying rise in prices in the short term. Moreover, most TSLA buyers are guided by technical analysis (what’s left if fundamentals “do not work”?). And the technical picture is more than favorable for Tesla. Source: TSLA chart by Investing.com with author’s notes
Therefore, in the short term, barring any news that may overshadow the above, I think TSLA will be able to overcome its previous high of $880 per share.However, I believe most investors are not interested in short-term price targets, which depend solely on the sentiment of the crowd. That is why I decided to try to incorporate the above news into my DCF model to answer the question: “What is the intrinsic value of Tesla?” Valuation based on the tailwinds I know that many people, including the Tesla bulls themselves, believe that intrinsic valuation does not solve anything. Indeed, stocks can fall or rise as long as you like without being tied to fundamentals, provided that the market is happy with the growth and prospects of the company. However, I believe that long-term investment in fast-growing companies can be represented as follows: “We are giving $100 today, risking a large share of this investment, but planning to get 10-20x due to the very rapid expansion of the company’s business.” In addition, rapid growth should ultimately lead to the fact that the growth stock will go into the category of value stocks after some time (timing does not matter, it could be 10-20-30 years).By business expansion I mean not only extensive (growth) methods of expanding operating […]