Tesla Is Still Worth a Good Deal More

Mark Hake

Tesla (TSLA) stock is one of the few this year that hasn't fallen a great deal. In fact, it was up YTD slightly yesterday.

But more importantly, the electric vehicle EV manufacturer is producing huge amounts of free cash flow (FCF). And this is even after it has just completed two huge giga plants, one in Austin and the other in Berlin.

For example, it produced over $5 billion in FCF for all of 2021, even though it spent $6.5 billion on the two plants last year. That was 9.3% of its $53 billion in revenue.

More importantly, during Q4 it generated $2.77 billion in FCF on $17.7 billion of revenue. That was a significantly higher FCF margin of 15.66%.

In other words, even though it was building 2 plants, it managed to dramatically raise its FCF margin during the year.

As the company said in its slide deck: "There should no longer be doubt about the viability and profitability of electric vehicles. With our deliveries up 87% in 2021, we achieved the highest quarterly operating margin among all volume OEMs.."

Tesla Stock Is Worth Much More

Analysts now forecast that the EV maker will hit $84 billion in revenue this year and $108 billion next year.

So, if we estimate that its FCF margin will be 16% this year and 20% next year, we can forecast $13.44 billion in FCF this year and $21.6 billion next year.

This is after its two plants are online. Moreover, the company is likely to build out more plants. That could lower its FCF, but also potentially increase its earnings power even further.

Either way, TSLA stock is likely to be significantly higher by the end of 2023 based on this powerful cash generation.

For example, assuming the market gives the stock a 1% FCF yield, the market value will be $1.344 trillion (i.e., $13.55 b in FCF/0.01). Next year, it could rise to $2.16 trillion ($21.6b/0.01).

Today, its market cap is $1.08 billion. So this implies the stock could rise 24.4% by the end of 2022, and 100% by the end of 2023. The reason is that $1.344 trillion is 24.4% higher than its $1.08 trillion market cap today. The 2023 target market cap of $2.16 trillion is double its $1.08 trillion market value today.

In other words, expect TSLA stock to hit $1,300 by the end of this year (24.4% over its price today of $1,045.76) or earlier, and up to $2,092 by the end of 2023.

This implies an average annual ROI of 41.42% on a compounded basis over each of the next two years. That is a very good ROI for most investors.

This is on par with Tesla's historical performance. In the last year, it is up over 55%, as the graph above shows. So my prediction that it will rise 41.4% over each of the next 2 years is not completely unreasonable.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

Mark Hake writes articles on InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com on stocks and cryptos.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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