Thread by @jpr007

FT THINKS TESLA IS A "DILEMMA FOR INVESTORS"

The current angst that the FT is reporting in some parts of the "investment community" tells us more about the woefully inadequate state of most investment analysis than it does about the fair value of TSLA shares

Let's examine this a bit more closely :

1. Equity Investment is about buying growth

- and the best growth to buy is that which will continue for a long time

2. To be able to see and buy growth you have to look out out into the future at least 5 years and preferably 10 years

3. When Buying a stock it is largely irrelevant what today's or next year's earnings are or what today's or next year's P/E Multiple is or will be

- and yet that is all you hear most of the time

4. In a world where P/E Multiples are the most common valuation metric, all you need to know about the future is the projected Net Income

- and you need to have the skill to estimate this based on unit metrics, sales prices, gross margins and overhead costs

5. As a first level of reference, to be a worthwhile Equity Investment a company's Net Income should be expected to grow by at least 2x over the next five years or by at least 4x over the next 10 years

- and this should be easy to determine

6. As a first order of business, analysts should start by taking management's own projections for their business performance and valuing them on that basis

- and yet in Tesla's case we see analysts deliberately avoiding doing that, by large margins

This is perverse

7. Second-guessing management is a dangerous game, and should only be considered as a counterpoint after fairly valuing management's own guidance

- and it should be clearly disclosed as such, with specific reasons

8. If you are going to discount the future Equity Value of a company back to the present, you should use a desirable long-term Equity Rate of Return

- and not some rate cobbled together from interest rates or called WACC which is actually a blend of Equity and Debt costs

9. If you keep it simple and approach the analysis intelligently, it is not at all difficult to see why Tesla is valued at its current stock price

The Wall Street community of "equity investment analysts" seem to have lost sight of these simple, basic and fundamental rules