Is Tesla's Stock Overvalued Or Undervalued?

Tesla Inc TSLA shares have outperformed the S&P 500 in the last year, generating a 12-month total return of 48%.

Tesla is still putting up impressive growth numbers, but with a $1.1 trillion market cap, some investors are wondering if there’s any value left in Tesla stock.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. For comparison, the S&P 500’s PE is currently at about 30, more than double its long-term average of 15.9.

Tesla’s PE is currently 353. That number is about 12 times higher than the S&P 500 average as a whole.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 21.3. Tesla’s forward earnings multiple of 128.7 is more than six times higher than the S&P 500 as a whole, making Tesla stock look extremely overvalued.

Tesla’s forward PE ratio is also about four times as high as its consumer discretionary sector peers, which are averaging a 31.1 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 1; Tesla’s PEG is 4.8, a huge valuation red flag at nearly five times the overall market average.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.27, nearly twice its long-term average of 1.63. Tesla’s PS ratio is 22.3, more than six times higher than the S&P. Tesla’s PS ratio is also up 911.3% over the past three years, suggesting the stock is priced at the extreme high end of its historical valuation range.

Finally, even Wall Street analysts are skeptical of Tesla’s value over the next 12 months. The average analyst price target among the 34 analysts covering Tesla is $1,003, suggesting about 6.2% downside from current levels.

The Verdict: At its current price, Tesla stock appears to be extremely overvalued based on a sampling of common fundamental valuation metrics.

Photo: Model S Plaid courtesy of Tesla