Is Tesla Stock Worth Investing In? A Comprehensive Analysis

Many investors view Tesla solely as an automaker, but others see it as a company driving revolutionary innovation, comparable to technology firms and luxury goods manufacturers. In this article, we will examine Tesla's fundamentals and assess whether it is a worthwhile investment at current levels.

Formerly known as Tesla Motors, Inc., the company designs, develops, manufactures, and sells electric vehicles and energy storage systems. Its operations are split into two segments: automotive and energy generation and storage systems.

The automotive segment focuses on the design, development, manufacture, and sale of electric vehicles. Meanwhile, the energy generation and storage segment is responsible for energy-efficient solutions and photovoltaic systems for residential and commercial use.

Tesla sells the Model S sedan, Model X SUV, and Model 3 mass-market sedan. Additionally, it creates electrical products for homes, commercial spaces, and public areas.

To gauge the company's financial health, we need to examine its revenue and profit growth trend over time. After years of growth without profits, Tesla is now earning profits, with margins consistently remaining within the 15-20% range of revenue. Diluted earnings per share have increased by an impressive 315% over the past three years.

However, investors must remember that Tesla's performance will eventually level out, like other companies. Thus, we must consider how much the company will be worth in the future.

Tesla has a strong short-term balance sheet, with over $22 billion in cash and short-term investments and total assets worth approximately $41 billion. The debt-to-equity ratio is good at 0.78, although an ideal ratio is 0.5/0.6 or lower.

Tesla's operating cash flow trend is upward, indicating its recovery in recent years. The company's latest free cash flow is $14.7 billion and yields about 2.5%. However, despite the positive growth trend, Tesla's stock is currently unattractive at its current levels.

The stock trades at a discount of just under 15% to its fair value of $221 per paper, based on the average of 12 different models. Analysts' average price target for Tesla is $207, suggesting an upside potential of about 8%.

Tesla has the potential for further growth, but other automakers are also investing in electric vehicles, which could slow Tesla's growth in the coming years. Additionally, the company's valuations could become overvalued again.

Currently, holding Tesla stock in your portfolio is a good idea, but it is not cheap. Most analysts also have concerns about management, given Elon Musk's involvement in other projects like Twitter, which could lead him to sell his stock at any time.