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Is Tesla a Buy Under $810?

Leading EV manufacturer Tesla (TSLA) achieved record operating margins and vehicle deliveries last year. However, supply chain challenges have limited its ability to run its factories at full capacity. Furthermore, an SEC probe into the company’s CEO and his brother could rattle investors. So, is it worth betting on the stock at the current price level? Read on. Let’s discuss.

The world’s largest electric vehicle maker, Tesla, Inc. (TSLA) in Austin, Tex., has seen its share price collapse 6.6% over the past five days, with all major indexes posting losses in recent days amid an intensifying tension between U.S. and Russia over Ukraine. While the stock has gained 13% over the past six months on the back of record vehicle deliveries in 2021 and phenomenal quarterly operating margin, TSLA’s production and delivery of its Model S/X dipped 19% and 38%, respectively, year-over-year. The EV giant experienced a continuation of supply chain, transportation, labor, and other manufacturing challenges in the fourth quarter that affected its ability to run its factories at full capacity.

TSLA’s stock slumped 13.9% in price over the past month to close its last trading session at $809.87. 

Although the surging popularity of electric vehicles and the company’s efforts to ramp up production at new factories in Austin and Berlin could accelerate its profitability, an SEC probe into TSLA CEO Elon Musk and his brother over Tesla share sales last year could further fuel investor anxiety about the stock.

Here’s what could influence TSLA’s performance in the upcoming months:

Uncertainty Surrounding Production

TSLA plans to grow its manufacturing capabilities by ramping up its production in Austin and Berlin and introducing manufacturing technologies in new locations. However, ongoing supply chain disruptions and other manufacturing challenges continue to impact its volume and deployment. Its factories have been running below capacity for several quarters and will likely continue doing so through 2022. In addition, supply chain challenges have limited the EV maker’s energy storage deployment growth.

SEC Investigation Could Be a Concern

According to a recent Wall Street Journal report, the U.S. Securities and Exchange Commission is investigating whether TSLA CEO Elon Musk and his brother Kimbal Musk violated insider trading rules when they sold company shares late last year. The EV manufacturer saw the price of its shares slump after its board member Kimbal sold 88,500 Tesla shares worth nearly $109 million in November 2021. While the SEC and TSLA declined to comment on this matter, Musk's battle with the SEC could weigh heavily on its stock price.

Mixed Financials

TSLA’s total revenue rose 65% year-over-year to $17.7 billion in the fourth quarter, ended Dec. 31, 2021. Its automotive gross margin grew 648 basis points year-over-year to 30.6%. Furthermore,  its adjusted EBITDA margin stood at 23.1%, up 586 basis points from the prior-year period. However, the company’s cash and cash equivalents declined 84.9% year-over-year to $2.52 million.

Its 25.3% trailing-12-month gross profit margin is 28.3% lower than the 35.6% industry average. Also, TSLA’s 0.9% asset turnover ratio is 9.7% lower than the1.04%  industry average.

Premium Valuation

TSLA’s 76.26x forward non-GAAP P/E is 475.3% higher than the 13.25x industry average. Its 9.56x forward EV/Sales is 693.7% higher than the 1.20x industry average. And in terms of forward Price/Sales, TSLA is currently trading at 10.12x, which is 908.6% higher than the industry average of 1.

POWR Ratings Reflect Uncertainty

TSLA has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. TSLA has a D grade for Stability. The stock’s relatively high beta of 2.01 is in sync with this grade.

Furthermore,  the company has a D grade for Value. Its higher-than-industry P/E ratio is consistent with the grade.

In addition to the grades we’ve highlighted, one can check additional TSLA ratings for Momentum, Growth, Quality, and Sentiment here. TSLA is ranked #28 of 68 stocks in the F-rated Auto & Vehicle Manufacturers industry.

Click here to check out our Automotive Industry Report for 2022

Bottom Line

With deliveries up 87% last year, TSLA achieved stellar profitability and revenue growth in the fourth quarter. However, its expensive valuation and uncertainty surrounding supply chain impact on its production capacity could limit its growth prospects. Furthermore, an ongoing SEC probe into the company leader’s CEO and his brother could make matters worse. So, we think investors should wait for TSLA’s  prospects to improve before investing in the stock.

How Does Tesla, Inc. Holdings (TSLA) Stack Up Against its Peers?

While TSLA has an overall POWR Rating of C, one might want to consider taking a look at its industry peers, Daimler AG (DDAIF), Isuzu Motors Limited (ISUZY), and Bayerische Motoren Werke Aktiengesellschaft (BMWYY), which have an A (Strong Buy) rating.

TSLA shares rose $3.83 (+0.47%) in premarket trading Monday. Year-to-date, TSLA has declined -23.36%, versus a -7.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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