Teslaלונג
TSLA - Does PE Matter? Don't be a Dullard the Answer is NO!
So lots of comments in the Twittersphere on how Tesla is not a buy because it is trading at a ridiculous PE of 61. If you are buying stocks based on PE alone, or even PE at all, you are a dullard and stop already.
What matters to the value of the company is the ingenuity, the growth, the potential, not what it's PE is at right now. Had you based your decision to buy TSLA on PE alone, well you still would never own any and missed out on one of the greatest rallies this decade.
Tesla is still in its infancy. They are the clear leader in the EV market and with autonomous driving. They are ready to start production of the Tesla Semi which DHL confirmed goes 500 miles with a full load. They are the leader when it comes to battery backup and lithium power in general. Let's not forget charging stations, best in class!! They have the best solar roofing systems out there which look like real roofs. Yeah their work or consumer Truck looks like shit IMO, but they will hopefully roll out a regular guy truck soon.
Ohhh did I mention robots? This alone could make Tesla a Trillion dollar company itself. At some point every household will have one or two of these running around 24/7 doing chores. I know a lot of people do not like Elon for his political alignment, but if Kamala Harris was on the verge of making a Trillion Dollar robot I would not mind buying the stock.
This is why IMO Tesla is pulling back. Now I have a lot of Tesla already, I had to like NVDA trim some out because it simply was too big of a position in my portfolio to hold like that. However if you don't have any, or just a little, I would have no issue buying here for the long term.
So how about the chart?
Tesla is in a broad consolidation phase after a blow off rally in late 2021. Just a broad consolidation with support at 200 and 160 and resistance at 260. Panic level would be 100, do not want to see a fall below 100. So buy as if you could see 100 trade though I think that is unlikely.
Tesla has also underperformed the market in general which tells me it is out of favor. I see GM trading near an ATH but that is where I would be bailing, GM is the perfect boundary stock. I am a GM guy, I lover their trucks, they also make a nice Camaro and Vette, but their run of the day cars are old. Stay away, don't buy the stock.
What Fundamentals matter then?
Revenue Growth - For a stock trading at a PE above 40 need to see 20% revenue growth minimum. Right now Tesla is just below that around 18%, however their truck does not go into production until next year so I assume that is going to have a large impact on growth.
Gross Income Growth - Again like to see 10% or higher for a stock trading above 40PE. Tesla has been growing above 50% but recently went negative at 15.31%. So we need an explanation. Well Tesla has been aggressive in price cuts to gain market share as BMW, AUDI and others bring EV's to the market. This is what Henry Ford did to become the megaladon he was. Also they increased spending on AI projects. So ok lets give them a pass here.
Gross and Net Margin: Like to see a company makes great products and one sign of that is the profit margin or the markup they are able to sell their products for. Gross profit margin for Tesla was 18.25% last year.
R&D - Some companies provide dividends, but companies like TSLA NVDA and AMZN invest that money back into new products. TSLA is reinvesting about 25% of its profit in Research and Development. As mentioned above, they are pushing hard into AI projects and AI is the future.
Net Income to Sales Revenue - 15.5% like to see a high net income to sales ratio.
All in all these all don't mean a lot on their own because GM has similar numbers to be honest. So what matters then? How do you really catch those companies that will continue to grow? Let's boil it down to this to keep it simple.
I want to invest in companies that are bringing new products to market that will make a difference in our lives. Amazon is one such company, who cares they were trading at a PE of 160, 200 or higher 10 years ago, how did that work out for those investors that invested in Amazon. Apple is another. I remember 8 years ago Apple was trading at 90bucks. It had a PE of 20 and everyone thought it was dead. However Apple was making new products and more importantly services, and now after a 5-1 stock split apple is trading at 200 or 10x's higher than it was in 2016.
So though I do look at fundamentals and want to see growth growth growth, I also want to see new products coming to market as well and with Tesla we have growth and new products coming to market. Between new hardware such as the Semi, Robot, power supplies, batteries, etc... and all the software services they will also provide TSLA is a buy. I would not be surprised in 10 years to see TSLA trading at $2000.
Never bet against geniuses like Steve Jobs and Elon Musk, failure is never an option.
What matters to the value of the company is the ingenuity, the growth, the potential, not what it's PE is at right now. Had you based your decision to buy TSLA on PE alone, well you still would never own any and missed out on one of the greatest rallies this decade.
Tesla is still in its infancy. They are the clear leader in the EV market and with autonomous driving. They are ready to start production of the Tesla Semi which DHL confirmed goes 500 miles with a full load. They are the leader when it comes to battery backup and lithium power in general. Let's not forget charging stations, best in class!! They have the best solar roofing systems out there which look like real roofs. Yeah their work or consumer Truck looks like shit IMO, but they will hopefully roll out a regular guy truck soon.
Ohhh did I mention robots? This alone could make Tesla a Trillion dollar company itself. At some point every household will have one or two of these running around 24/7 doing chores. I know a lot of people do not like Elon for his political alignment, but if Kamala Harris was on the verge of making a Trillion Dollar robot I would not mind buying the stock.
This is why IMO Tesla is pulling back. Now I have a lot of Tesla already, I had to like NVDA trim some out because it simply was too big of a position in my portfolio to hold like that. However if you don't have any, or just a little, I would have no issue buying here for the long term.
So how about the chart?
Tesla is in a broad consolidation phase after a blow off rally in late 2021. Just a broad consolidation with support at 200 and 160 and resistance at 260. Panic level would be 100, do not want to see a fall below 100. So buy as if you could see 100 trade though I think that is unlikely.
Tesla has also underperformed the market in general which tells me it is out of favor. I see GM trading near an ATH but that is where I would be bailing, GM is the perfect boundary stock. I am a GM guy, I lover their trucks, they also make a nice Camaro and Vette, but their run of the day cars are old. Stay away, don't buy the stock.
What Fundamentals matter then?
Revenue Growth - For a stock trading at a PE above 40 need to see 20% revenue growth minimum. Right now Tesla is just below that around 18%, however their truck does not go into production until next year so I assume that is going to have a large impact on growth.
Gross Income Growth - Again like to see 10% or higher for a stock trading above 40PE. Tesla has been growing above 50% but recently went negative at 15.31%. So we need an explanation. Well Tesla has been aggressive in price cuts to gain market share as BMW, AUDI and others bring EV's to the market. This is what Henry Ford did to become the megaladon he was. Also they increased spending on AI projects. So ok lets give them a pass here.
Gross and Net Margin: Like to see a company makes great products and one sign of that is the profit margin or the markup they are able to sell their products for. Gross profit margin for Tesla was 18.25% last year.
R&D - Some companies provide dividends, but companies like TSLA NVDA and AMZN invest that money back into new products. TSLA is reinvesting about 25% of its profit in Research and Development. As mentioned above, they are pushing hard into AI projects and AI is the future.
Net Income to Sales Revenue - 15.5% like to see a high net income to sales ratio.
All in all these all don't mean a lot on their own because GM has similar numbers to be honest. So what matters then? How do you really catch those companies that will continue to grow? Let's boil it down to this to keep it simple.
I want to invest in companies that are bringing new products to market that will make a difference in our lives. Amazon is one such company, who cares they were trading at a PE of 160, 200 or higher 10 years ago, how did that work out for those investors that invested in Amazon. Apple is another. I remember 8 years ago Apple was trading at 90bucks. It had a PE of 20 and everyone thought it was dead. However Apple was making new products and more importantly services, and now after a 5-1 stock split apple is trading at 200 or 10x's higher than it was in 2016.
So though I do look at fundamentals and want to see growth growth growth, I also want to see new products coming to market as well and with Tesla we have growth and new products coming to market. Between new hardware such as the Semi, Robot, power supplies, batteries, etc... and all the software services they will also provide TSLA is a buy. I would not be surprised in 10 years to see TSLA trading at $2000.
Never bet against geniuses like Steve Jobs and Elon Musk, failure is never an option.
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