The Investor Entry #1: January 5, 2023
Tesla is a very interesting company for many investors including myself, yet Tesla’s stock was never on my watch list until today, where the forces in the stock market today have put Tesla in a position to add it to my watch list.
Tesla in the stock market has long been overvalued, to an extent that I would not even consider giving it a moment of my time to study. Since the beginning of 2022, Tesla stock price started showing signs of drawing back from this exaggerated over-evaluation position.
Although Tesla stock price has fallen more than 65% in 2022, it was still too high for me to consider. Yet a couple of days ago when they missed their car delivery estimates, things started to look interesting.
Today Thursday the 5th of January 2023 was the day that I added Tesla to my watch list with a pre-market price of $114.45. There are many forces behind where Tesla Stock Price is today, and I believe those forces will keep on playing until they get Tesla to the price level where I would take a deeper took at the company to buy shares in.
What are those forces?
What is the price level that I am willing to buy Tesla at? and why?
Forces Behind Tesla Stock Price Today and Tomorrow
The main force that drove Tuesday’s Tesla Stock Plunge was missing the estimated number of delivered cars in the 4th quarter of 2022. This was the third time they missed this number. I expect this force will continue to hold back the company into 2023.
The Second force is down-force cushion. Even if Tesla was able to overcome the delivery challenges, it will have to counter the softening demand that has its own multiple forces pushing the demand downward; China’s slowing economy which consists of about 21% of Tesla’s Revenue, continues interest rate hikes in 2023 by central banks to fight inflation and the expected recession not only in the USA but also Globally.
The Third force is increased competition. This is happening in China as well as in the other parts of the world. The new entrants in China and the current manufacturers who are moving to electric cars the likes of GM and Ford in the US and the likes of Mercedes and VW outside of the US.
The increased competition has another angle which is what is becoming noticeable in the electric car market as an industry. The product life cycle is showing signs that it is a short one and that the buyer is buying into the car features which are technology related. This means that new buyers will want to buy new and fresh features.
Tesla seems to have noticed that and what they are doing to fight back this issue is reducing their prices. There are too issues with this counter; the first is reducing the margins, and the second is hurting the brand.
The fourth force is the extremely diversified interests of the CEO. Put aside the well-known interest in space there are other unknown interests. But last year moves which are related to social media as well as the interest in being involved in politics.
Most people talked about the move to Twitter, what I will be watching is his moves in politics. To me all the previous forces are temporary for a 7-10 year outlook, but the move into politics is the decision breaker for me whether to buy into Tesla Stocks or not.
My Analysis Of Tesla’s Stock
Currently I don’t trade stocks or otherwise, I invest. The way I invest is that I look for companies at cheap prices that have growth potential in their fundamentals that would push their stock price higher in the future.
This means that I don’t look at technical indicators to analyze a stock, I only look at fundamentals to arrive at a price point where I feel comfortable with.
Tesla’s fundamentals are amazing in terms of revenue and net margin growths. There cash flow and return on invested capital are very encouraging for the time being. Of course and it comes at no surprise that what is not great is their price/earnings and price/cash flow, and logically if we love the earnings and cash flow, then apparently the problem is still with the price even at this current level.
So what is the price that I am willing to pay and why?
Tesla Stock Price That Meet My Appetite
I usually create future estimates for a 7-year time frame with three numbers of low, medium and high estimates. My first watch list notification starts with the high if the price is above the highest estimated point.
I estimated a 7-year revenue growth of 7%, 10% and 15%. Yes I know that for the last 10 years the Tesla revenue growth was 59% but those were the last 10 years. The coming years there are different forces at play and the market is totally different.
I also estimated a growth of profit margins of 5%, 7% and 9%. I estimated the same for free cash flow margins. I put the P/E and P/FCF at 14, 16 and 18.
Out of all this, and because of all this, the price at which I will look back at Tesla and see how encouraging it is to invest in is at $50 per share price point.
Conclusion
This was my diary entry for Thursday 5th of January 2023 of my investment activities. Tesla has to move down more that 56% for me to study the company and decide whether I am going to buy it or not.
Many of you will most certainly disagree with me, some of you might agree with my logic. In both cases it is great to share ideas and we can all benefit from each other.
Let us see what tomorrow will hold for us, but as usual my entries are not necessarily daily but only when I do an investing activity and time allowed to write about it.
The Investor
Thrusday 5 Jan 2023
About The Author
I started looking into individual stocks in January 2022. I created this diary initially for myself to track my investing progress, and second as a place that I can share my ideas publicly hoping that others will share their ideas and learn from each other, and lastly as an online business where some links that I share are affiliate links, and if anybody bought anything by clicking those links I will get a commission based on that successful sale, which of course will not affect the price that you are buying the product or service at.
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