How Tesla’s Valuation Is Trending before Its 2Q17 Results

Where Tesla Stands in the Face of Its 2Q17 Estimates PART 7 OF 8

Valuation multiples

Valuation multiples are widely used in highly capital-intensive industries including the automotive sector (VCR). But we have to use these valuation multiples to compare companies that either are similar in size or have a similar business model. To be sure, no other publicly listed automaker has a business model similar enough to Tesla’s (TSLA).

Tesla’s forward valuation

As of July 24, Tesla’s forward EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) multiple was 41.4x. This valuation multiple is calculated based on TSLA’s estimated EBITDA for the next 12 months.

The company’s forward EV-to-sales multiple was 3.9x. Notably, Tesla’s valuation multiples are higher than those of mainstream auto companies (VCR) General Motors (GM), Toyota Motor (TM), and Ford Motor (F).

On many occasions, Tesla’s high valuation multiples have been questioned by analysts. But Tesla can’t quite be valued using the same metrics as mainstream auto companies.

What could be factored in?

Tesla is a growth company, unlike other legacy auto companies with proven track records. For this reason, in the case of a fairly new company like Tesla, growth matters the most at this stage. Key factors, such as the company’s ability to showcase high revenue and profit growth, can continue to have an impact on Tesla’s forward earnings growth estimates. Such factors could also change Tesla’s valuation multiples in coming quarters.

For this reason, Tesla’s Model 3 will be critical for the company’s overall success in the long run. A positive update hinting toward an on-schedule Model 3 delivery plan could have a positive impact on Tesla’s valuation multiples going forward.

In the next and final part of this series, we’ll examine some key technical levels in Tesla stock.

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