Tesla's Stock Valuation
Module 2 – SLP: STOCK AND BOND VALUATION
For your second SLP assignment, continue to do research on the company you chose to write about for your Module 1 SLP. This time you will be doing research about the valuation of the company to try to determine if its stock price is overvalued or undervalued. You can use Google Finance, Yahoo Finance, or similar Web pages to find the financial information about this company.
Write a 2- to 3-page paper with the following items:
1. What is the P/E ratio of this company? How does the P/E ratio compare to other companies in this industry? Based on the P/E ratio, do you think the company is overvalued or undervalued?
2. Find the company’s balance sheet. Calculate the book value of each share. This can be done by taking the total assets and subtracting total liabilities. Then divide the number you get by the total number of outstanding shares. Is the number you get higher or lower than the current price of the share? Based on what you’ve found, would you say the stock is overvalued or undervalued?
3. Finally, do a search on what different analysts have to say about your company. Do they generally recommend buying the stock or selling the stock? What reasons to they give for their assessment? Find at least three analyst reports about this company.
SLP Assignment Expectations
• Answer the assignment questions directly.
• Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
• For computational problems, make sure to show your work and explain your steps.
• For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. Citation and reference style instructions are available at Trident University's Introduction to APA Style, 7th edition . Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
Tesla Stock Valuation
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Tesla Stock Valuation
One of the key metrics ideal for assessing the relative value of a given stock is the price-to-earnings (PE) ratio, which compares the stock price to the market price of a given share. Tesla has a PE ratio of 75.41 (Yahoo Finance, 2023), indicating that the company’s share price is 75.41 times its earnings per share. Comparatively, Ford Motors has a PE ratio of 20.45, Toyota Motors has a PE ratio of 13.13, and General Motors company has a PE ratio of 6.07. from the comparison, Tesla has the highest PE ratio in the industry, indicating that investors are willing to pay a higher premium for Tesla's earnings. The high PE ratio suggests that most investors in the stock have high expectations that the company’s future earnings will grow significantly. Conversely, the high PE could indicate that the company is overvalued compared to its peers in the industry. However, given that Tesla is also a technology company, I believe that the company is not overvalued.
Tesla’s value can also be calculated by examining the book value of each share based on the total assets and liabilities of the company. The company’s total assets for FY 2022 were valued at US$ 82,338,000,000, while the total liabilities attached to the company were US$ 36,440,000,000. Thus, the book value of the company is US$ 45,898,000,000 (Yahoo Finance, 2023). Given that the amount of common outstanding shares as of January 25, 2023, was declared as 3,164,102,701, the resulting value per share would be US$ 14.51. The value of the share as of June 30, 2023, was US$ 261.77. Based on the calculations, the current market price of the share is significantly higher than its book value. As such, it is accurate to claim that the company’s value is overvalued. It is highly likely that the investors in the stock are highly influenced by the assignment of higher value to Tesla's...