Submitted by FinancialSubstance16 t3_10cwyst in wallstreetbets
Two years ago, it was pretty clear that Tesla was overvalued. Its P/E ratio was significantly higher than its competitors. In fact, the company was worth more than General Motors, Ford, and Toyota combined. Tesla seemed poised to eventually compete with the established automakers but investors seemed to think that Tesla would eventually become a monopoly. Tesla did better than expected in 2020 but it seemed like investors overshot the new reality. And it seems like I was right to be fearful when investors were greedy on TSLA.
From two years ago, the stock has gone down by 58.27%. The P/E ratio is now 37.78. The thing to note about Tesla is that it's really a tech stock and it should be treated as such. Tech stocks tend to have higher P/E ratios because investors anticipate higher revenue growth. Another thing worth noting is that while the stock price has fallen, earnings have gone up. In 2020, Tesla made roughly $31.5 billion with $6.6 billion in gross profit and just under $2 billion in operating income. Over the past 12 months, Tesla has made $74.8 billion in revenue, $19.9 in gross profit, and $12.5 billion in operating income. The P/E ratio is much higher in Tesla than its competitors which is 2-10. However, compared to other tech companies, Tesla is rather tame. Amazon is at 89.2. Even its competitor, Walmart, is at 44.7.
Tesla has much higher growth potential than its competitors, being a first mover in electric vehicles. Its competitors are largely well established and are not growing as quickly as Tesla. Tesla has already established itself as an EV brand. The question is whether its competitors can make the switch towards electric vehicles to hold their own against Tesla.