Four Reasons Tesla Motors Inc (TSLA) Isn’t Too Expensive

Page 1 of 2

At first glance, it might seem difficult to justify Tesla Motors Inc (NASDAQ:TSLA) forward P/E ratio of 117. But if you want to invest in game changers like this leading all-electric automaker, you’ll have to go beyond valuation metrics in your analysis. A careful examination reveals a compelling growth story, making it a great, and maybe even reasonably priced, stock despite its astronomical valuation.

Tesla Motors Inc (NASDAQ:TSLA)

Here are four key reasons Tesla’s valuation isn’t fluff:

1. Insider confidence
Only three months ago, Tesla Motors Inc (NASDAQ:TSLA) stock traded at just $35 per share. After a mind-boggling gain of almost 200%, shares are significantly more expensive today, at about $104 per share. The meteoric rise, however, didn’t faze co-founder and CEO Elon Musk. At $92.24, he purchased 1,084,129 shares, making the $100 million purchase the company’s largest insider buy on record. Musk certainly isn’t lacking confidence in his company’s monstrous valuation.

2. Colossal growth
Even if Musk is bullish on Tesla Motors Inc (NASDAQ:TSLA) stock, what on earth could merit a forward P/E ratio of 117? It’s going to take some serious growth. Fortunately, Tesla has that down pat.

Sales were up 83% from Q4 2012 to Q1 2013. From the year-ago quarter, sales were up a whopping 1,770%. This puts Tesla on par with makers of popular luxury cars. For instance, in the first quarter Tesla Motors Inc (NASDAQ:TSLA)’s Model S outsold Daimler‘s Mercedes-Benz S-Class, the BMW 7 Series, and Volkswagen‘s Audi A8.

While tougher comparisons will make impressive growth like this much harder to sustain going forward, there’s still potential for outstanding growth. Musk says that the company is planning to get a $30,000 Tesla model to market as early as three to four years from now. Obviously, this would dramatically expand Tesla Motors Inc (NASDAQ:TSLA)’s addressable market. According to Musk, it would mean a couple hundred thousand additional cars per year.

Plus, the company still only sells in North America. Europe and Asia could present significant upside to sales if Tesla succeeds in marketing its cars in these regions in the future.

3. Remarkable operational feats
Tesla’s manufacturing process has continued to improve, as the company reports reduction in “the hours required to build a car by almost 40% from December to March.” Feats like this helped the company boost total gross margin from 8% in Q4 2012 to 17% in Q1 2013. By comparison, Ford Motor Company (NYSE:F)‘s gross margin in Q1 was 16.21%.

4. Tesla makes great cars
That’s an understatement. Consumer Reports says the Tesla Motors Inc (NASDAQ:TSLA) Model S performance is “off the charts.” The car earned a score of 99 out of 100 in the magazine’s tests, the highest score Consumer Reports has ever given.

What about the one point it did not receive? Consumer Reports wasn’t two fond of the six hours it took to charge the battery. But tomorrow Tesla plans to show “a way for the Tesla Model S to be recharged faster than you could fill a gas tank,” according to a tweet from Musk. The June 20 event will show off a “live pack swap,” he says.

But what about competition?
The easy bear argument against Tesla is that there are many better-capitalized competitors that are able to achieve far greater scale, ready to pounce on any significant opportunity in the electric car market. But there’s a sound rejoinder to this argument: Tesla is cheering for competition. As Musk recently said, “I hope we are surrounded by electric cars by other manufacturers.”


Source: All Things Digital.

Competition will bring on greater electrification of transportation, making electric cars a significant segment of the industry. In that scenario, Tesla will benefit not only as an automaker but also as a supplier of electric car parts and technology to other automakers.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!