Stock splits will have no impact on stockholders’ equity. There are many studies made to investigate whether a stock split is still considered a policy that creates value for the underlying company and the rationale behind such action for companies listed on the NASDAQ. The results of a study indicate a positive market reaction at the stock split announcement and that the liquidity hypothesis explains well the rationale for the stock splits.
So the 5:1 Tesla stock split at the end of August 2020, does not add any value from a fundamental perspective. It does not make the Tesla stock more valuable due to an earnings positive surprise, an increase in profitability, or more positive free cash flows. Yet today August 12, 2020, the Tesla, Inc. (TSLA) stock closed at 1,554.76+180.37 (+13.12%) as it was announced that a five-for-one stock split. It has nothing to do with the fundamental view or the valuation of the company. It will only adjust the price lower when it will take place. Education is everything in the stock market and in investing. Stocks can move for many reasons.
Tesla (TSLA) stock made a new 52-week and closed above the $1,500 for the first time ever
Investing in stocks, choosing stocks to buy, stocks to sell is not an easy task. Speculators ignore the fundamentals of stocks and buy or sell stocks only to profit from short-term price movements. This is the game of the stock market. Tesla (TSLA) stock on Friday, July 10, 2020, made a new 52-week high and closed at 1,544.65,+150.37 (+10.78%).
Why I believe Tesla (TSLA) stock is extremely overvalued and a financial bubble
2. Free cash flows
After 10 years of going public Tesla (TSLA) struggles to make a profit. And yet some Wall street analysts increase their price target on Tesla. For the years 2019, 2018, 2017 and 2016 the net income (in thousands) for Tesla was -862,000, -976,091 ,-1,961,400, and -674,914 respectively.
The free cash flows (in thousands) for the same years were 968,000, -221,714, -4,142,008 and -1,564,300 respectively. Turning to the quarterly numbers for the free cash flows, the figures for the last 4 quarters were -921,000, 976,000, ,346,400 and 590,399.
The market is pushing Tesla stock higher on hopes and expectations of an inclusion soon in the S&P 500 based on profitability for the last 4 quarters. Even if this is the case the valuation of Tesla stock to my financial analysis does not justify this stock price, and is too overvalued. The catalyst that Tesla will be a dominant player in the electric cars is not credible as competition is too intense from other car manufacturers. For now speculators drive the Tesla stock much higher. But even if the stock is included in the S&P 500, after such a big stock rally, who will drive the stock price higher?
I do not own or have sold any shares of Tesla, but this stock has moved too fast and too high without any solid fundamental reason.
TSLA stock closed at 935.28-37.56 (-3.86%) on Friday June 12,2 2020. For the week ending on June 12, 202o TSLA stock had a performance of +5.60%. Shares of Tesla, Inc. (NASDAQ:TSLA) made a new 52-week the previous week. Tesla stock has a 52-week range of 211.00 – 1,027.48. Tesla stock has a Beta (5Y Monthly) of 1.17, and a PE Ratio (TTM) N/A. Tesla has a market capitalization of 173.471 Billion as of June 12, 2020.
“Tesla stock gets two downgrades, falls below $1,000.Tesla Inc. stock lost some of its luster Friday after Goldman Sachs and Morgan Stanley moved to downgrade the shares, saying there are risks investors might have ignored as they rewarded the company with a dizzying valuation.
Tesla TSLA, -3.86% shares fell on Friday but garnered a weekly gain of 5.6%. The shares closed at a record $1,025.05 on Wednesday.”
The stock market reacted to this tweet and Tesla stock fell. At the close, the stock price for Tesla, Inc. (TSLA) was 701.32-80.56 (-10.30%). It is hard to make any Tesla stock predictions. In the Tesla stock chart above a huge rally is shown from the price of about 400 to about 850, so nay profit-taking in Tesla stock is reasonable. Besides that, Tesla stock is among very popular and trending stocks in Wall Street.
Tesla stock as of 1:42 PM EST time is trading at $922, having made an ew 52-week high at $940.13.
Tesla stock trading
There is a huge rally about Tesla (TSLA) stock, ongoing but extreme caution is required. Fomo trading or fomo investing (fear of missing out) is too dangerous when trying to pick stocks to buy or stocks to sell. What are the fundamentals of the stock? There are many negative fundamental ratios and trends about Tesla stock.
The huge rally is not sustainable as there are concerns about the valuation of Tesla stock. Yes trading and gambling is another story, and stock market is not rational at all times, and short selling the Tesla stock has not worked well at all lately. But a rally in any stock needs to have catalysts. Our opinion is that Tesla stock is extremely overvalued.
Name: Tesla Motors, Inc.
Symbol: NASDAQ: TSLA
Sector: Consumer Discretionary
Industry: Automobile Manufacturers
Tesla Motors, Inc. designs, develops, manufactures and sells electric vehicles and energy storage products. The Company produces and sells two electric vehicles: the Model S sedan and the Model X sport utility vehicle (SUV).
Stock price close at 16th November 2016: $183.93
Market Cap: 27.57B
52 Week Range : $141.05 – $269.34
PE Ratio (TTM): -29.09
Tesla Motors, Inc. (NASDAQ:TSLA) is an electric car manufacturer with products such as Model S, which we love and would buy without any hesitation. Great car with fantastic design and technology. But it is another thing to like a company and its products and to like or not the company’s stock. Having a thorough fundamental analysis on Tesla’s stock what can we point out as strengths and weaknesses?
We will perform stock fundamental analysis for 5 years, from 2011 to 2015 and also focus on latest quarters for 2016.Total revenues and gross profit have followed a huge increase. From $204 millions of revenues in 2011, Tesla earned 4046 millions in 2015.Gross profit followed an increase from $62 millions in 2011 to $ 924 millions in 2015. As Tesla invests in technology research and development expenses and selling general expenses have both increased significantly during this 5 years period. The net result is negative operating income for all 5 years, with a huge negative increase in year 2015 of -$714 millions compared to -$187 millions to 2014.Net income after taxes is negative for all 5 years, with year 2015 having the biggest negative number of the 5 years -$889 millions. The trend of diluted normalized EPS is negative also, no surprise here, following the same trend as net income. In 2015 the diluted normalized EPS was -$6.93, the lowest point for the 5 year period.
While cash and short term investments have been increasing from $280 millions to $1197 millions in 2015, what is alarming is the increase of total debt over the 5 years. It has increased from $280 millions in 2011 to $2,696 millions in 2015.Each year the total debt follows an increase compared to previous year. While total equity shows also a large increase over the 5 years from $224 millions in 2011 to $1084 millions in 2015.
Cash Flow Statement:
Here we have an interesting trend for cash flows from operating activities and cash flows from investing activities compared to cash flows from financing activities. Cash flows from financing activities have showed an increasing trend, as the company issued stocks and debt and the net result was an increase of cash but for the same period cash from operating and investing activities has been negative. And free cash flow has been negative for 4 out of the 5 years, with year 2015 being at -$2159 millions showing a negative increase of about 110% compared with year 2014.
As mentioned before the company has negative EPS for all 5 years, with year 2015 having the highest negative earnings per share of -$6.93 for the period. While gross profit margin is positive for all 5 years it has shown a diminishing trend and is currently at +22.82% for year 2015.Net profit margin is negative for all 5 years, showing a great improvement from year 2011, but for year 2015 it is at -21.96% almost doubled from last year. ROE is negative for all 5 years, again showing an improvement from base year 2011 but for year 2015 it is at -82.00% compared to -32.25% for year 2014 a very negative performance.
Both current ratio and quick ratio have showed a declining trend for our 5 year period. Current ratio for year 2015 is at 0.99, it was 1.95 at year 2011, while quick ratio for year 2015 is at 0.54, it was 1.69 at year 2011. Debt / Equity ratio is very alarming as it has been increased significantly during these 5 years. It was 1.2504 at year 2011, it was 2.488 for year 2015.
Relative value analysis with industry:
Tesla Motors, Inc. has negative profit margin, ROE and interest coverage ratios compared to the relevant ratios of the automobile manufacturers industry. The industry has all 3 positive ratios. The company has a negative P/E ratio, while the industry a P/E ratio of 9.48.The company has a price/tangible book value ratio of 10.29 compared to the 1.84 price/tangible book value ratio of the industry.
The expected EPS growth rate for next 3-5 years is about 30%.Tesla Motors, Inc. had a recent EPS surprise of 112.28% on 26th October 2016, the first in last 4 quarters showing positive EPS of $0.14 compared to expected EPS of – $1.14.
The stock has been in a downtrend and its recent price close of $183.93 on 16th November 2016 is below the daily moving averages of 50 and 200 days, which are currently at 198.75 and 212.48 respectively. Both moving averages show a declining trend. MACD is negative currently having a value of -4.746.Other indicators such as full stochastics for 14 days show an oversold condition being at 15.35.
We do not like the fact that Tesla has not showed profitability for last 5 years. It has a lot of debt which makes it a very risky stock. Until it shows a consistent profitability we cannot suggest to buy the stock. It seems extremely overvalued on a comparative value analysis with the industry it belongs. Unless fundamentals improve a lot and show not just once improvement but a long term improvement, our bias is to sell or go short the stock going with current declining trend.
Legal disclaimer and sources:
The author has not any current shares of the stock in his portfolio or intends to buy, sell any stocks of the company in the near future. This is an independent financial analysis with not any financial compensation from any source. Sources used are investools.com, zacks.com, stockcharts.com and yahoo finance.
As always stock market is a risky financial market
If how to invest in stock market was easy we would all be millionaires.There are numerous stock market for dummies tips but one of the most important stock market news are earnings.
it is almost impossible to predict stock market today,although technical analysis tries to do it.Take for instance Tesla motors(Nasdaq:TSLA). It was expected to announce yesterday again losses, yet it announced profits.So today as we saw from yesterday after hours trading we may probably see a rally in the stock.The point is though, is one profitability enough to change the stock market fundamental view about Tesla?
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