By CCN: Kevin Rooke, a financial commentator with a weakness for Bitcoin, tweeted something really weird this week: Tesla seems overrated if you see him as an automotive company, but underestimates it if he sees it as a technology company.
If you think Tesla is a car company, it seems overrated.
If you think that Tesla is a technology company, it seems undervalued. pic.twitter.com/bxlfSAXo9N
– Kevin Rooke (@kerooke) May 1, 2019
It does not seem to be an unreasonable thesis at first glance. But dig deeper and you will find that it does not matter what the electric car company looks like, led by Elon Musk. Either way, Tesla shares are still overvalued and overvalued. However, fund managers continue to pour money into it.
Tesla Stock: Not all rainbows and unicorns
Rooke's mistake is that he uses Uber and Lyft to establish a baseline for the valuations of technology companies. Neither Uber nor Lyft should be set as an example.
Wall Street values both companies with 12-month revenues between 7.5x and 7.9x. In comparison, Apple quotes at 3.8x, like Amazon. However, both companies are incredibly profitable with a solid free cash flow.
Uber and Lyft have none. Therefore, to say that Tesla's shares are undervalued because they are traded at a 1.9x income, while also worrying about amazing losses and burns through mountains of cash, is an empty proposal.
Even then, evaluating a company solely on a price-to-sale basis does not provide an exhaustive badysis.
Tesla is an automobile producer, not a technology company.
And we are going to put the nail in the coffin in this thesis. Tesla is not a technology company. It is a car company.
While Tesla may have some interesting technology to back up their cars (the ones that work, anyway), that technology is not patented, nor is it what the end consumer is buying. The consumer is buying a car.
To say that Tesla is a technology company would also mean that all other automakers that are developing electric vehicles or cars without a driver are also technology companies.
That obviously is not the case.
If you look at the thesis of the Rooke car company, Tesla shares are not simply overvalued. The actions of TSLA are valued as unicorn; The unicorns, remember, do not exist. The reason why Elon Musk's company is called unicorn is because its valuation will never be justified. Forever.
Forget about the price-sales relationship. Look at the benefits and the market capitalization. Ford Motors has generated more than $ 23 billion in net profits over the past four years. The market values it at $ 41 billion.
GM has generated more than $ 35 billion in operating profits over the past four years. The market values it at $ 55 billion.
Tesla has lost $ 4.5 billion in the last four years, and the market values it at $ 41 billion.
If you want proof that Tesla shares are overvalued and overvalued, consider that the market gives Tesla a value that is equivalent to that of Ford Motors.
And Ford vehicles do not burn spontaneously.
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That's the power of the hype for Tesla. That's the leverage of the momentum investment for Elon Musk. That is the predominance of the stock market over indexed funds and actively managed funds. These funds are forced to own Tesla, simply because it is too big and too well known not to be included in these portfolios.
The inclusion requirements of momentum and index funds are the only things that keep Tesla's stock afloat. As the wheels come out of Tesla a nut and bolt at a time and their market capitalization begins to shrink, there will be less pressure for managers to include Tesla shares in their portfolios.
Even now, TSLA's shares are traded at a minimum of two years.