I know investors hate plowing through complex spreadsheets, but sometimes it is worth the money. This is especially true with regard to Aswath Damodaran’s valuation of Tesla Motors Inc (NASDAQ:TSLA). Aswath was a student of mine at UCLA and we have been colleagues for many years. His work is always careful and insightful. Perhaps even more importantly it is transparent. When Aswath posted a $68 valuation of Tesla Motors Inc (NASDAQ:TSLA) on his website last week, he also posted a detailed spreadsheet that showed all the calculations and assumptions.
I spent part of this weekend going through Aswath’s spreadsheet. What struck me is how bullish his assumptions were. Had I not known the outcome, that he would conclude the stock was overvalued, I might have accused him of hyping the stock by making such optimistic assumptions – sustained rapid growth for 10 years in a highly competitive business while maintaining margins! Not easy things to do. Furthermore, despite the risks inherent in a Tesla Motors Inc (NASDAQ:TSLA) investment he discounts future cash flows at less than 10%. Again an assumption that greatly favors a high valuation
Carlson Capital's Black Diamond Arbitrage Partners fund added 1.3% net fees in the first quarter of 2021, according to a copy of the firm's March 2021 investor update, which ValueWalk has been able to review. Q1 2021 hedge fund letters, conferences and more At the end of the quarter, merger arbitrage investments represented 89% of Read More
It is probably not a good idea to be investing in Tesla’s stock
Despite these optimistic assumptions, Aswath’s valuation still comes to about $68 compared to a market price of over $160. I urge anyone thinking of trading Tesla Motors Inc (NASDAQ:TSLA) stock to plunge into the details of Aswath’s work. You will find, for example, that dilution associated with outstanding options plays an important role. If that undertaking seems to daunting, it is probably not a good idea to be investing in Tesla Motors Inc (NASDAQ:TSLA)’s stock.
By Brad Cornell, Professor of Finance at Caltech