Is Tesla's Stock Overvalued Or Undervalued?

Tesla Inc TSLA shares have lagged the S&P 500 in 2021, generating a year-to-date total return of 10.1%.

Tesla is still putting up impressive growth numbers, but with a $749 billion 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 33.9, more than double its long-term average of 15.9.

Tesla’s PE is currently 406.6. That number is about 12 times higher than the S&P 500 average as a whole. Tesla has only been consistently profitable for about two years now, so there is no long-term historical earnings multiple to use for comparison to today’s level.

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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 20.7. Tesla’s forward earnings multiple of 109.3 is more than five times higher than the S&P 500 as a whole, making Tesla stock look extremely overvalued.

Tesla’s forward PE ratio is also about five times as high as its consumer cyclical sector peers, which are averaging a 21.9 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 7.8, a huge valuation red flag at nearly eight times as high as the overall market.

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 3.1, nearly twice its long-term average of 1.62. Tesla’s PS ratio is 17.8, more than five times higher than the S&P.

Finally, even Wall Street analysts are skeptical of Tesla’s value over the next 12 months. The average analyst price target among the 35 analysts covering Tesla is $764, suggesting about 1.3% 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.