2022 Year-to-date shares of Tesla (TSLA) are down 66%. The question everyone is wondering is, "Can Tesla fall more?" The simple answer is yes. Any stock, even one with a cult-like following, can go to zero.
The question we should be asking is, when is Tesla stock fairly valued? Or even better, undervalued? Having an idea of what price Tesla should be valued at will give investors a better idea of when they should buy or sell. And really, the only time you buy or sell should be when a stock is overvalued or undervalued.
The problem is that valuing a stock is not cut and dry. Nearly every investor will inevitably come up with a different value for a stock, even if they are using the same data to do their valuations.
With that in mind, let us look at one way of valuing Tesla and determine if it is over, under, or fairly valued.
Today we will be using a comparison method of valuing Tesla. We will look at what Tesla does, compare its business to other companies operating in the same industry or industries, and determine if Tesla is appropriately valued based on its competitors.
Tesla is more than just a car company. I know you have all heard that before. Tesla considers itself a car company and an energy generation and storage company. So let us first compare Tesla to other solar energy generation and storage companies, and then we will tackle the car company side of the business.
A few years ago, Tesla purchased Solar City. A solar panel company that installs solar panels on residential and commercial buildings and has add-on battery storage components.
We can compare this side of Tesla's business to First Solar (FSLR). First Solar makes, installs, and maintains solar panels just like Solar City does for Tesla. First Solar is valued at just under $16 billion and has a price-to-earnings ratio of 165.
However, Tesla and Solar City also sell backup batteries that can be installed in a home. These batteries would be used during power outages or when solar panels aren't generating power, such as at night.
A comparison company for this would be Generac Holding (GNRC), which also sells power backup products, mainly generators, but they have battery backup systems for solar panels. Generac currently trades for $6.5 billion and trades at a P/E of 15, much more reasonable than First Solar. Continue reading "How Low Can Tesla Go?"