Thread by @jpr007

QUESTION OF THE DAY 20210327

"If Toyota is selling almost 9 million cars per year.
. . . why does it have a lower Market Cap than Tesla ?"

The QUICK ANSWER is "because they are mature with no growth"

Their results are what they are

Equity Valuations are based on GROWTH

But let's take a closer look at Toyota and understand better with the LONG ANSWER - THREAD :

Equity Valuations are based on GROWTH

Which means we should be looking for more profits in the future than in the present

Standing still has no premium to it

That is good for Bonds

And when your current business is showing this . . .

. . . and you have given investors no clear and credible strategy for getting to the other side . . .

. . . investors naturally HAVE TO discount your prospects

So let's look at the numbers

1. This ICE business is mature

- and facing obvious decline

2. Toyota's Total Revenues are $254.1 billion

And there is no "growth story"

A Valuation at a Price / Sales Ratio of 1.0x would be very generous

= $254.1 billion

3. Toyota's Net Income for 2019 was $19.0 billion

With no growth story

So that's all you can expect to get

$19.0 billion / $254.1 billion = 7.5% Net Income Margin NIM

Compare that with Apple today

- NIM = 20.9%

- and +7.0% Revenue growth

4. Market Capitalization = Equity Value = $243.3 billion

That is a Price / Sales Ratio of 0.96x

- which is almost exactly the 1.0x that was suggested above

$243.3 billion / $19.0 billion Net Income = 12.8x P/E Multiple

That is very fair for a "no growth" company

5. Tesla is currently priced at $617 per share

This represents a 9.4x P/E Multiple on our 2031 Net Income projection after discounting TSLA back to the present and taking into account expected Stock Dilution

So Toyota today is actually being priced higher than TSLA in 2031

6. Which means that the market is not pricing in TSLA's growth after 2031

Whereas in fact we can expect that TSLA's growth rate in 2031 will still be at least +15% per annum

7. Our forecast for 2031 is $6,000 billion

And we have made an extended forecast this week for a Valuation of $10,000 billion in 2036

So TSLA's shares are currently very cheap

And Toyota's shares are very generously priced

- based on the journey that lies ahead of them

FOOTNOTE

"Apple and Samsung could be selling the same amount of smartphones . . . and could perhaps have almost the same revenue . . . but Apple's Valuation is much higher"

Start by looking at Net Income

Not at Sales

Understanding these two charts is KEY

END