There is a company that is not easily ignored. The company's well-designed electric vehicles seem to be a hit with customers and the bulls seem quite pleased with the stock price rise. The bears are skeptical of the stock price run's long-term viability. The last five years have seen a 15-fold return on the stock ofTesla.
It's important for potential investors to consider whether it's safe to invest in the stock now. While that is not going to be easy, investors should at least consider the two questions about the company and its stock.
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The company has recently reported some solid financials. After delivering its first profitable year in 2020, the company exceeded that performance in 2021. It grew revenue and net profit by 665% and expanded free cash flow by 80%.
The last paragraph started out with the word "lately", which is useful to know that the company had never delivered a profitable year until 2020. It was on the verge of bankruptcy a few times. As the worldwide transition from combustion engines into electric engines gained steam,Tesla was positioned to capture the demand. Its solid numbers show that it did.
The result in 2021 was remarkable, but it is still an outlier. Two profitable years don't give much assurance that the company can sustain that in the future. Consumers will tighten their belts during an economic downturn because the car industry is very volatile. When that happens, average people tend to delay their purchases, which could reduce industry volume. We don't know what will happen in that environment.
The EV race has intensified in recent years. GeneralMotors and Ford Motor Company have big plans to ramp up their production, even though they have a 21% global market share in 2021, according to Autocar. BYD and Nio are Chinese car companies. The latter was backed by Warren Buffet and sold 593,745 EVs in 2021. BYD said it would stop producing cars that use the engine.
In order to stay profitable and maintain its market share, the company must execute flawlessly in the coming years. We do not know if the company can sustain its strong execution, but we do know that the days ofTesla having the entire EV market to itself are over.
Ask any investor how to make money in the stock market, and the usual answer is to buy a stock when the price is low and sell it when the price is high. The argument is incomplete since an investor should also consider the stock's intrinsic value. When the stock price is lower than the intrinsic value, it's a good time to sell.
Estimating intrinsic value is not easy. Every investor uses different variables to calculate the intrinsic value of a company. Every investor will arrive at a different value for the same company.
The margin of safety was entered. The idea is that when investors buy a stock at a lower price than its true value, there is room for error. Even if they make a mistake, they don't lose much money since they buy the stock cheaply.
Is the stock cheap enough to give investors a margin of safety? Let's look at a few simple metrics. The price-to-sales, price-to-book, and price-to-E ratios of the company are as of writing. The P/S, P/B, and P/E ratios are different for General GM.
The bulls will claim that the company is fundamentally different from GM. I agree with them thatTesla is not an average company, but I think it's worth more than GM. Is oneTesla equivalent to 30 to 40 GMs? The answer is probably not for me.
There is no doubt that the company is headed in the right direction. It is a leader in the EV industry and has a lot of investments in industries like renewable energy and self-drive vehicles.
I don't think it's safe to buyTesla stock with your hard-earned money. The company turned profitable in 2020. It would take a few more years for investors to assume that the turnaround is permanent. It's valuation is not cheap and it doesn't offer a lot of safety for investors.
Unless investors are looking for a rush, they should stay away from the stock. Even if they are looking for excitement, they can buy a car from the company.
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