Aswath Damodaran, a Professor of Finance at the Stern School of Business at NYU, published another blog entry on the subject of the current valuation of Tesla Motors Inc (NASDAQ:TSLA) today, March 25th. Damodaran wrote a controversial post back in September of last year in which he explained his method that valued Tesla Motors at $67 per share.
Not a Tesla basher or short
Damodaran begins the blog by taking great pains to make it clear he is not a Tesla Motors Inc (NASDAQ:TSLA) basher nor does he hold or plan to open a short position in the stock. He also says he believes Elon Musk is a visionary and a great CEO, and the company is in the process of “changing the automobile business.”
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Damodaran’s four criteria for valuation of Tesla
Revenue growth — Revenue growth doubled from 4Q 2012 to 4Q 2013. Furthermore, the total revenues in 2013 came out to just over $2 billion, a nearly 500% increase over the $413 million total revenues in 2012.
Operating margin — Damodaran summarizes the improvements in Tesla Motors Inc (NASDAQ:TSLA)’s operating margins. “In further good news, the operating losses (based upon GAAP) at the firm decreased over the period, down to -$13.4 million in the last quarter of 2013. In fact, adjusting for R&D expenses (capitalizing and amortizing), I estimate an operating profit of $15.46 million in the last quarter of 2013, vindicating the company’s claim that it turned the corner on profitability for the year (albeit with a very different rationalization).”
Quality of growth/reinvestment — In his valuation, Damodaran uses the ratio of sales to invested capital as a proxy metric for quality of growth/reinvestment. Tesla Motors Inc (NASDAQ:TSLA) also saw an improvement in the last quarter of 2013 as the ratio moved up from 0.66 in 3Q to 0.87 in 4Q. This means a dollar of invested capital generated $0.87 in revenue in the last quarter.
Risk — Damodaran says the risk profile has been pushed back and forth by various events, but has not changed a great deal over the last few months. “There are mixed signals in whether Tesla is getting less risky over time. The volatility in the stock price has actually increased over the last few months, as the stock first dropped on the news about car fires and then recovered quickly and decisively. However, the announcement that the company would raise $2 billion in convertible bonds is an indication that it is opening access in other markets and that will stand it in good stead, if it needs more capital to either grow or survive.”
Tesla current value $110-$115
When you do the math in his valuation model, Damodaran comes up with a current valuation of $110-$115 for Tesla Motors Inc (NASDAQ:TSLA). As of 2:21 PM ET today, Tesla was trading up $1.29 at $221.46.