tesla rewrite -- 725 words (excluding reference)

Stock Valuation & Analysis

This valuation and analysis for Tesla Inc. will demonstrate the relationship between value and stock related to its price-to-earnings ratio. The importance of market capitalization and beta as well as the information it may provide to investors will be reviewed. With the information gathered through this analysis, a recommendation will be given for Tesla. Information will be obtained through the stock analysis found on the Yahoo Finance website.

Tesla

Tesla, Inc., is an alternative-fuel automotive company, which recently surpassed Ford as the number two for market value of an American automotive company. Its market cap is about $50 billion dollars. Tesla's mission is “to accelerate the world's transition to sustainable energy”.

Stock Valuation: Price-to-Earnings Ratio

Three factors affect a company’s price-to-earnings ratio. The first being investment opportunities on future projects, the second are small risks stocks with higher P/E ratios, and third are the conservative accounting practices likely to have high P/E ratios. Each factor can affect stock valuation separately, but not altogether. Tesla’s P/E ratio can be high in regard to investment opportunities on future projects, which will affect stock pricing. The future projects are projected to bring in value. Stock valuation for Tesla inflates as prospective launches of new products arise. Currently, Tesla’s P/E is -24.4 compared to last year’s -65.89.

Dreman analyzed stock returns of 1200 US stocks for 20 years (Dreman Value Management, LLC, 2010). He found that stocks with a low P/E ratios outperformed stocks with a high P/E ratio. His warning to investors is to be patient for long-term investments if they would like to benefit by the low P/E strategy. The alternative high-risk investor tends to have higher short-term returns.

Market Capitalization and Beta

“The market capitalization of a public firm is equal to the firm’s stock market price per share multiplied by the number of share outstanding (Dudley, 2016). The calculation allows investors to better understand the relative size of a company in comparison to another as well as what the company is worth in an open market. It reflects the value an investor will pay for stock. Beta is an important measure of the equity market volatility. It can be described as the sensitivity to the market and demonstrates the relationship of the financial instrument to the market inc which it is traded. If beta is greater than a one, the asset of the company is volatile and moves with market trends. Tesla’s beta is .84, which renders some growth.

Recommendation

Tesla’s stock is at a its predicted value from a one year ago. Based on the current stock valuation and analysis of Tesla Inc. stock, my recommendation is to hold on investing. Analysts predict the company’s growth in the next quarter to soar up to 124%, but have a P/E ratio under one (Yahoo Finance, 2018). There is a lot of upside to the stock, but its currently undervalued. Tesla will encounter a lot of challenges in the upcoming years as new products tend to have issues at launch, but if it remains diligent in upgrading its processes the company could gain the stamina for sustainability. Its competition stiffens with other automotive entering the electric car market. Tesla is not worth investing in for 2018.

References Dreman Value Management, LLC. (2010, December). Dreman Investment Philosophy & Process Presentation. Retrieved from Dreman.com: http://www.dreman.com/news-resources/DremanInvestmentPhilosophyandProcessPresentation.pdf Dudley, E. (2016). Capital-structure changes around IPOs . Retrieved from Ivo-Welch: http://cfr.ivo-welch.info/readers/2017/dudley-james.pdf Yahoo Finance. (2018, October 10). Tesla, Inc. (TSLA). Retrieved from Yahoo Finance: https://finance.yahoo.com/quote/TSLA/analysis?p=TSLA