Wednesday, April 9, 2014

The Man Who Hated Tesla: Professor Damodaran Revises His "The Stock is Worth $67" Call (TSLA)

Just kidding about that "Hated" bit.
In early trading the stock is changing hands at $216 up 56 cents.
From September 12, 2013's "Tesla: Even More on Aswath Damodaran's $67.12/share Valuation (TSLA)":
The stock is up $2.22 at $165.74.
It appears the good professor is developing a cottage industry in Tesla valuation posts....

....And it would appear that we have a cottage industry in linking to his posts. Previously:
Sure, He Called the Top In Apple and He Called the Bottom in Facebook But Tesla Fair Market Value at $67.12? (TSLA)

Tesla: More on the $67.12 Valuation (TSLA)
As most of our readers know, after that series of posts the stock traded up to $265.00 on Feb. 26, 2014.
Here's the latest. From Professor (Stern, NYU) Damodaran's Musings on Markets blog:

Tuesday, March 25, 2014
Return to the firing line: Revisiting Tesla and hopefully living to tell the tale! 
In September 2013, I valued Tesla on my blog at about $67 and learned a lesson about how passionate its stockholders were in defending it, viewing it less as an investment and more as a calling. I guess the lesson did not stick, because I am back for more punishment with an updated valuation of the company. Preempting some of the criticism that I may get for my post (and the views that it contains), I would like to put some basic facts on the table before I put down my valuation.
  • No, I don’t hate Tesla and Elon Musk. In fact, I think Tesla is one of the most innovative companies that I have seen emerge in a while and not only is it changing the automobile business, but it is doing so with style. As for Elon Musk, I wish that the CEOs of other companies were as passionate and visionary in promoting their companies' mission and products, as Musk is with Tesla.
  • No. I still have not driven a Tesla. I do live in New Jersey, a state that is attempting to use twentieth century regulations to stop a twenty-first century company. I also live five minutes away from Short Hills Mall, where Tesla just opened a showroom. So, I have seen the car, sat in it, but unless I want to create a disaster inside a mall, I don't think I can drive it out of the showroom.
  • No, I have not sold or plan to sell Tesla short. I also do not work for anyone who has sold short on Tesla, have not been paid (and will not be paid) for this post and won't be cheering if the stock retreats. In the interests of fairness, I do know one person who has sold short the company's shares with some success, but have not partaken in his profits.
  • No, I don’t believe that my valuation of Tesla is the "right" valuation of the company. It is mine, with my assumptions, estimates and views embedded in it, wrong or misguided though they might be. 
  • No, I don't think you are crazy, if you own or recently bought Tesla. I am a firm believer that each of us has to make our own judgments on what to invest in and why, though we all share the same end-objective, which is to make money on our investments. So, if you have good reasons to believe that Tesla is the right investment for you, I hope it works out for you.
Having dispensed with the formalities, let me move to substance. 

Valuation: Then and Now
In my September 2013 valuation of Tesla, I came up with a value per share of $67. At the time, the narrative I provided for the company was that giving it the revenues of Audi (about $65 billion) and the margins of Porsche (about 12.5%), in a decade, still yielded a value below the market price (about $170 in September 2013). Rather than rehash the assumptions I made in this post, you can find them in my original post
Since that valuation, there have been earnings reports that have contained substantial information about the growth trajectory and profitability of Tesla, as well as other news stories about the company, some positive (Consumer Report awards for its cars, the $5 billion investment in the world's largest electric battery factory) and some negative (Tesla car fires). All of these news stories provided information that led me to reassess some of the key inputs that I used in my valuation. 
  1. Revenue growth: Tesla continues on its path to higher revenues, reporting revenues of $615 million in the fourth quarter of 2013, doubling its revenues from the same quarter a year ago. The annual revenues in 2013 amounted to just over $2 billion, an almost five-fold increase over the $413 million in revenues in 2012. 
  2. Operating margin: In further good news, the operating losses (based upon GAAP) at the firm decreased over the period, down to -$13.4 million in the last quarter of 2013. In fact, adjusting for R&D expenses (capitalizing and amortizing), I estimate an operating profit of $15.46 million in the last quarter of 2013, vindicating the company’s claim that it turned the corner on profitability for the year (albeit with a very different rationalization).
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