Tesla Stock Analysis – Bad Fundamentals = Bad Investment

Tesla Stock Analysis - Tesla is one among those stocks that do not need much consideration before investing into it. Because, people believe that the stock has always been in trend and will remain in trend forever. Isn’t that notion completely contradicting? At one stance, we deem that stock prices are highly unpredictable and flimsy. While, on the other hand, we give unlimited lifeline to few shares, thinking that they will never be affected by the market ups and lows.

However, the bitter truth is very different from what most people perceive. Every person that I know which hold Tesla in his portfolio, does have it without taking into consideration the profitability, growth, financial health and efficiency of it. They trade it according of their technical analysis, for speculation or because it is a company on trend. So, I’m here to show you the ugly truth about Tesla and the boring things that the majority of people do not like but should analyse before investing in any given stock. After all, it is your money on stake?

About Tesla

Knowing the past and present of the company makes it easy for guessing its future growth. So, here are few things to know about Tesla Inc.

Tesla Inc. which was formerly known as Tesla Motors, was founded in 2003. It is an American multinational corporation with its headquarters in Palo Alto, California. The company designs electric vehicles and lithium-ion battery energy storage. It also manufactures solar panel through its subsidiary company, SolarCity.

Tesla visions to make electric cars affordable for most of the consumers around the world. With multiple manufacturing units, Tesla offers few of the world’s best electric car models to the consumers.  

Tesla – Key Indices

All the glitters are not gold. When investing in a stock, we mostly check the trend and forget about the vital reasons that actually decide the stock future. Experienced analysts deem to look from every angle before you put your trust. So, let’s have a look on those key indices that decide how the stock will turn out to be.


In the table below, you can see both good and bad signals about the company profitability.

This company have a tendency toward growing but still negative margins, increasing Cost of Goods Sold, increasing SG&A Expenses, Decreasing Research and Development Expenses, Decreasing Asset Turnover Average over the long run (good signal), increasing but still negative Return on Assets, Return on Equity, Decreasing Return on Invested Capital and Decreasing Interest Coverage Ratios.

So, for a Fundamental and Value Investment Criteria, this isn’t a wise investment choice because it is not profitable. If a company is not earning profit for itself, how it would profit its investor?

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Talking about the Growth of the company, you would be alarmed after looking at the data below. Although, the enterprise is generating decent Revenues Growth which is very good for aggressive investors, it does not generate profits. So, we still fall short of the reasons for investing in this stock.


Source: Morningstar


I am still not sure what to consider for making an investment in Tesla? Because, all the key ratios seem weak and unfavourable.

The company is not generating positive Cash-Flows. On the contrary, this company have a decreasing Net Cash-Flows from Operations, increasing Net Cash-Flows used for investing activities, increasing Cash-Flows from Financing Activities.

In short, the company is not generating value for its shareholders as the Free Cash-Flows are unavailable. So, it fails as a Value Investment perspective as well. Moreover, the company has a lot and increasing debt issuance which is getting worse with huge number of investors looking out for making profits through the stock. So, it is very risky to invest in it.


       Source: Morningstar

Liquidity/Financial Health

Unsurprisingly, this section is full of bad signals about Tesla. First, current as well as quick ratios are below 1 and constantly decreasing. This indicates that Tesla is not able to meet all their short term financial obligations. In addition, it has an increasing financial leverage ratio. Hence, this company is increasing their debt over time relative to its assets. Last but not the least, it has a Debt to Equity Ratio around 2 which means that the debt almost doubles the equity value.

It’s as scary as it sounds!

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Efficiency Ratios

Tesla have a stable Days of Sales Outstanding, Decreasing Days in Inventory, Decreasing Payables Period and a Decreasing Cash Conversion Cycle. So, the company is showing efficiency for managing their Receivables and Payables. On the other side, TSLA have stable but high receivables and inventory turnover ratios showing an inefficient overall asset management.



TSLA does not have Price to Earnings Ratio (does not generate earnings). The Price to Book Ratio of 11.8 more than ten times higher to the industry average and the Price to Sales Ratio almost 4 times higher than industry. It is highly overvalued and is an expensive company to invest in.


Analysts take on Tesla Stock

Among all the Morningstar Analysts only single analyst recommend buying it. However, five suggest holding it. But the financial data analysis using historical data and the Annual Earnings Estimates suggests that it is not a good investing due to its bad performance over time


Competitive Comparison

Looking at this data tab, Tesla have a very high 5-Yr Rev CAGR% but still have negative margins, interest coverage and a high D/E ratio. However, in this industry there exists other companies with best financials, valuation and are less riskier than Tesla. Hence, I do not recommend investing in this company despite of its staggering revenues growth.


Quick Revision

Positive Trends

  • Company is in trend
  • Decent Revenue Generation
  • Stable Days of Sales Outstanding, Decreasing Days in Inventory, Decreasing Payables Period and a Decreasing Cash Conversion Cycle

Negative Trends

  • The company is not profitable for value investment Criteria
  • Not generating enough profits
  • Absence of Positive Cash Flow
  • Financial health of the stock is highly scary
  • Overall inefficient Asset Management
  • Overvalued Stock