What’s Built Into Tesla’s Stock Valuation At Current Levels?

He adds that estimates for the second stage are less controversial, although the first stage is open to debate. Assuming the numbers listed above for the high-growth stage, he still comes up with a price of only $630 per share. Tesla stock is well above that level, so it seems as if investors are banking on something more happening with the company.

According to the numbers Spak ran, to reach a price of $750 per share, Tesla would have to manage a 30% growth rate for 11 years, and the shares are still trading above that level. To reach $763, the automaker would have to grow its cash flow at a rate of 32.5% for 10 years.

What else is included?

When he ran a screen for other companies that have grown their free cash flow at a rate of at least 30% for 10 years, he came up with Apple, Amazon, and Google. Tesla has been compared to all of these companies at different times. The problem with these comparisons is that these companies are all fundamentally different from Tesla.

"Chiefly, TSLA is a manufacturer that operates in a more cyclical industry that requires continual capital investment to develop and manufacture new product (otherwise it gets stale) to sustain growth and not a company benefitting from software/service margins, selling profitable ads or platform model (AWS)," he explained. "Effectively those business models allow for investment to be better scaled."

Spak believes that in order to reach the current valuation of Tesla stock, investors would have to believe in the company's autonomy strategy and using software to get its margins and free cash flow higher. CEO Elon Musk even said something similar on the fourth-quarter earnings call when he said, "… that high margin part comes from autonomy."

However, Spak is skeptical that the automaker can pull it off.

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