Tesla (NASDAQ:TSLA) shares are experiencing a negative performance in the current quarter, with a loss of 12 percent.
In the past, I have always advised caution when it comes to investing in Tesla shares, stating that the prices were too high.
Success in the stock market depends on knowing when to buy and at the right price.
I think Tesla's current valuation at $220 is too optimistic for 2024. The electric vehicle industry is becoming increasingly competitive, hurting the company's margins (as evidenced by recent price cuts).
Tesla's operations have been affected by reduced deliveries and mass recalls in the U.S. and China, while CEO Elon Musk is at the center of controversy in the media.
I see an imminent recession in the coming months (given the still inverted yield curve of Treasury bonds, the contraction of total bank credit in 2023, and negative economic indicators).
Typically, a P/E ratio between 30x and 40x for 12-month projections is considered fair for a company with revolutionary products, already large, growing annually at rates below 25%.
If there were a recession coming, I would expect the stock value to fall below $200.
I understand that optimists do not want to hear negative predictions about the stock price, but it seems the most reasonable choice.
An important factor that worries Tesla investors is the much higher valuation compared to other similar companies.
For example, we can look at market capitalization + total debt - available cash to calculate enterprise value and compare it with other major automakers globally. Also, in terms of EBITDA.
Tesla has a huge enterprise value multiple of 45 times compared to an industry average of less than 6 times!
From a technical point of view, the situation is also very delicate. The trend clearly shows a bearish bias, with prices well below the EMA 100. Moreover, this trend is supported by rising volumes.
Musk's recent comments have caused a "firestorm" and could affect Tesla's stock sales. Wall Street views the company as a "technology innovator," and Musk's creation of a separate company for AI projects would certainly be a "big downside."
A distracted CEO can only hurt the company.
Conclusion
In short, I expect Tesla's stock price to fall below $200 in the coming quarters. The company is facing a difficult financial situation, with declining profitability and rising inventories.
This indicates difficulties in selling vehicles and maintaining profit margins.
With a projected price-to-earnings ratio of 82.66 for the current fiscal year and 64.4 for the next fiscal year, this company is considered very expensive in terms of earnings multiples.
In addition, its "enterprise value to sales" ratio is among the highest globally.