Valuing TSLA as an auto stock doesn’t make sense.
Tesla’s (NASDAQ:TSLA) earnings were great yesterday, much to the chagrin of bears. And rather than seeing the big mess they wanted to see, bears saw a big beat. And TSLA stock rose. But the Tesla bears aren’t satisfied and are reverting to the valuation argument.
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That argument goes something like this: Tesla is an automaker that should be valued like an auto stock. So, it should trade at 8X-10X earnings, not 100X.
TSLA Stock: More Than Cars
But Tesla is not an auto company and will never be valued as such, for two main reasons:
First, Tesla does sell cars … but those cars are more like computers on wheels. They come equipped with a full software suite, self-driving capabilities and more.
Taking this further, Tesla will someday be capable of leveraging its network of “computer cars” to turn into a subscription business, wherein the company sells transportation as a service.
And let’s not forget that Tesla has a booming solar and energy storage businesses as well.
And onto my second point — Tesla reinvests all its earnings and cash flows into growing the business.
That’s big. Tesla is still in its early stages, and that’s exactly what you want to see these companies do — invest to grow, not invest to hoard cash.
So, ignore the bearish cases for TSLA stock revolving around its valuation as an auto stock, because Tesla is far more than just an auto company.
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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Article By Luke Lango, InvestorPlace