Tesla (NASDAQ:TSLA) stock is up 68% over 12 months, but collapsed during 2022. So if I had put £10,000 in Tesla stock two years ago, today I’d have around £7,500.
That because the company’s shares have fallen by over 26.3%, but the dollar has appreciated against the pound, providing a small tailwind in my favour.
This is why it’s not a bad idea to buy stocks denominated in other currencies when the pound is strongest.
However, overall, this would have been a very poor investment. Of course, if I were yet to sell, it would be an unrealised loss. Building on this hypothetical investment, would I be wise to hold on?
Very expensive
Tesla stock’s currently trading above its average price target. That’s never a good sign. At the time of writing, It’s trading with a 6.7% premium to its target price. And this is supported by valuation metrics.
Tesla trades at 81.7 times TTM (Trailing 12 Months) earnings, and that makes it one of the most expensive profit-making car manufacturers worldwide.
And it’s even worse on a forward basis. The Elon Musk company trades at 96.2 times forward earnings for 2024.
Moreover, several analysts and brokerages don’t foresee Tesla’s cyber truck and AI projects positively contributing to net income until the end of the decade.
As such, the price/earnings-to-growth (PEG) ratio doesn’t look very attractive at all when we consider than a ratio under one normally suggests a stock in undervalued.
Unfortunately, Tesla’s PEG ratio is 4.53, inferring the stock is highly overvalued. The electric vehicle (EV) maker is expected to experience earnings per share growth of 17.6%.
Longer-term value?
Looking beyond the near term, Musk clearly sees a lot of value in self-driving capabilities. The company appears to have achieved many of its developmental objectives here, but monetising it is a different thing entirely.
Naturally, Musk plans to sell these autonomous vehicles, but he’s also aiming to deploy them as part of a network of taxis. This could be a hugely attractive new revenue stream.
However, there’s no guarantee Tesla will pull this off in the near future. And Musk does have a track record of overpromising and underdelivering.
My take
I’d love to have more faith in the Tesla programme. And I think the company has done a phenomenal job of progressing the EV market. However, I’m not sure I have enough conviction to put my money into the company.
Instead I’m focusing my attentions on companies that are clearly undervalued, such as China’s Li Auto, which has a PEG ratio of just 0.04. That’s a fraction of Tesla’s valualtion.
Of course, it’s hard to bet against the United States and a US company, but the valuation metrics are worlds apart.
