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If it’s not obvious from social media that Tesla bulls have a religious obsession with the stock, a look at the company’s financials makes it clear.
Tesla trades at 97.1 times forward earnings (next year’s expected earnings per share divided by the current stock price), according to data from Yahoo Finance.
In this week’s chart, we compare this number with others, and the difference is stark.
Nvidia has garnered the most attention for its valuation during this year’s bull market, but investors are paying nearly double the price for Tesla, which trades at about 48.5 times forward earnings. Nvidia’s stock is up 800% since 2023 and is already up nearly 200% so far this year, but the company’s profits are exploding too.
Tesla and Nvidia’s peers both trade at valuations above the average S&P 500 index price of about 22 times their stock prices, but these companies have been responsible for most of the market’s earnings growth in recent quarters.
But there’s always more going on in the market.
In a note this week, DataTrek’s Nicholas Colas wrote that while these figures are useful, they can be further disaggregated by looking at how much of a stock’s valuation is generated from current earnings and how much is generated from what is essentially an analytical version of hopes and dreams.
Colas calculates that roughly 45% of the S&P 500’s overall valuation comes from current earnings, with the rest coming from a historically-supported optimistic outlook that earnings will continue to grow.
And if Tesla is simply more expensive than its Magna Seven peers, its stock price is in another league when compared with other automakers, GM and Ford, which trade at 5.1 and 6.5 times next year’s earnings, respectively.The traditional automakers’ cheapness to the market is driven by concerns about how well they would fare in a downturn.
“And in Tesla’s case, 91% of its valuation is based on future earnings growth,” Colas wrote. “This speaks to a faith-based stock, rather than one valued on short-term fundamentals.”
With expectations for future earnings so high, it’s clear that investors are seeing the company’s robotaxi thesis as a paradigm shift for the company — and it probably won’t be the only one.
However, it would be wise to exercise caution when it comes to valuations.
The warnings that accompany announcements about what is overvalued and what is undervalued often don’t carry much weight in practice. Overall, valuation metrics are likely to hold over time. The average forward P/E for the S&P 500 is about 19x. Specifically, the range of outcomes is much wider.
All-time highs often follow all-time lows, and history is filled with losses and missed profits from investors who let inertia and emotion take overly seriously whether a company was “overvalued.”
Especially in the case of Tesla.
Ethan Wolfman is a senior editor at Yahoo Finance and runs the newsletter. Follow him on Twitter. Follow.
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