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tesla has crushed earnings excitement levels all-time high paul they're doing wonderful things we love them why is their stock down so first off my tesla's on order it is now coming in july i'm pretty excited about it what color a white go on of course you have your tesla mo got his tests on february or march he loves it the car is phenomenal elon musk is a brilliant brilliant man and so now it's time to look at the numbers and understand what is going on with tesla stock so paul they're building tesla shanghai they're building tesla berlin what does this lead to in their financials all right so let's go to the eight pillars software let's pull up tesla okay so first off this this car company i mean look at this chart from the last 10 years seth yeah i mean this stock price has just been gangbusters one of the best investments around oh absolutely and uh in the last year high of 1240 and now it's at 864 a little bit down today so guys this is an 875 billion dollar company our eight pillars will tell a story so guys pillar number one we want the five year pe for the company to be under 22.5 it is 1824 massive x now usually i would sit there and say okay well we can always grow into that value but 1824 is a big big number but our job is to look to see if the growth potential is there to justify that because if it's very very low earnings and they're in the beginning of a very big growth of earnings it could be okay so just hang with me tight right there pillar number two the five year return on investor capital we want over nine percent it is 2.9 but again guys i look at tesla and go yeah but it's a growing company they're not going to have a lot of free cash flow as they build out factories which they've been doing and all these things so the free cash flow is going to be lower so keep that in mind with this company that story is different as they are growing pillar number three we want revenue growth over the last five years so we go to our income statement on our software we go five years ago 11.76 last year 53.8 massive check mark almost five times more what could you ask for what more could you ask for pillar number four we want net income or profit growth to be positive over the last five years so we scroll down just a smidge they lost almost two billion five years ago last year when they made five point five billion massive check mark there a seven and a half billion dollar swing seth is this telling all that a lot of people are saying that they're now in the clear they've overcame a lot of the bumps you know these old interviews were where elon's was saying that this company was weeks from going under there's a lot of positivity around the fact that they've cleared all this they're a major player in the car business i see more and more every day every single day i used to be one of the loners driving down the road i know is it incredible you used to wave to each other now it's just commonplace like what are you doing over here yeah oh you're the 2013 loser so pillar number five guys and this is where i think the first hurdle comes in for tesla share is outstanding now when a company has shares when you buy into a company and it has 10 shares and you own one of them you own 10 percent of the business but if they issue two more shares to bring other investors in it might sound great but it's actually not great for you you still own one share but now instead of splitting the profit and revenue up amongst 10 shares you're splitting amongst 12 shares now so instead of getting 10 of the revenue in profit you're now getting 8.33 it's called dilution and it's a silent killer so let's draw on the bottom of the income statement the end of six years ago they had 720 million shares outstanding now they have 986 million shares outstanding that is dilution of 30 or 40 percent now not to be confused because they've split down a few times and they're not the same they're gonna yeah they're gonna split more this year yep that's not the same thing that is merely diluting shares when they split that gets adjusted for the split going all the way back so that's a that's an x right now and kind of a concern for me pillar number six i would imagine they have a ton of debt growing all these new car lines and well they're issuing shares though i'm sure they're using that money to do that with go on that's the benefit of issuing shares when you're expensive company go issue them give them everybody it doesn't take on debt for the company sixth pillar is we want to look at their long-term liabilities relative to their five-year free cash flow so we go back to the main page their five-year average free cash flow is 1.17 billion now keep in mind look at last year's free cash flow 7 billion so 1.17 we want to multiply that by five that's 5.6 billion dollars we want their long-term liabilities under 5.6 again this is gonna be skewed because the last five years free cash flow has been very very low when we go to the balance sheet i scroll at the bottom 11.4 billion dollars so way too high but last year's freight cash flow was almost 7 billion that makes the story a lot better if they can keep that going increasing this debt is nothing it's not a big deal at all so it's only skewed because five years they've been last five years and spent a lot of money on capital expenditures building factories so guys pillars number seven and eight have to do with free cash flow so we go to the very top we go to the cash flow section of our website scroll a little bit free cash flow is the lifeblood of the business it's cash from operations lesser capital expenditures i've added this line to make the math easy for you to do the math yourself five years ago they had a negative 4.4 billion in free cash flow in the last 12 months they've had 7 billion that's a swing of 11 12 billion dollars that's incredible money okay our final met so that's a check mark our final eighth pillar we take the five year average free cash flow and remember it's going to be low we multiply by 20 for some sort of valuation metric i'm even laughing at this 22 billion dollars like this is a joke 22 billion dollars got it it's an x but you've heard all this the eight pillars i'm gonna do we're gonna do the math for you the eight pillars tab right here does all that math for you so that's what you have to waste your time with it because i don't like doing it either but you see there's a lot of x's here and these things are high but i want to make sure that we're understanding the fact that tesla is a growing company and you should pay more for growth the question becomes how much is too much for growth so that's how you're going to use a stock analyzer tool next right because the one thing that everybody says is growth growth growth right even even elon musk said i think 50 growth is in our viewpoint for for this year and next let's go to the stock analyzer tool this has to be paul one of the most exciting companies to ever be around i feel like i've talked about before little kids love the car old folks love the car it's so they have no commercials yet everyone knows who they are and their superstar elon musk making all these new moves with twitter and spacex it's like unstoppable so all this is wonderful paul how do i translate this into how do our viewers translate this into a price to pay for this company in terms of a stock well let's go to our stock analyzer tool so i do believe that the tesla's out of the wor with the woodwork in terms of staying around so i think it'll be around for 10 years and a much bigger company 10 years ago 10 years from now than today so the question is what's the revenue growth the very first line of our stock analyzer tool because what we do here is every investment's the present value of all future cash flow we use the stock analyzer tool to basically do that for us tell us what our assumptions are we're going to put assumptions in it's going to tell us what those assumptions are worth today revenue growth it's already doing 50 plus billion dollars in revenue so if it becomes the number one car manufacturer in the world let's say that then i'm going to sit there and say that i'd be 500 billion dollars that's 10 to 1 over the next 10 years right so 10 to the 0.1 that's growth of 25 a year so i'm gonna start with 20 25 and i'll put in 30.
okay it's a very high number yes and again guys this assumed that 10 years from now tesla is the number one car manufacturer in the world profit margin now the last year they've had a really high profit margin but even elon musk has said hang on a second we had to increase our prices a lot because we see future costs being higher it'll be it'll be weighed down then so i'm still going to keep this i'm going to go a little bit lower i'm going to keep the 10 profit margin in and then i'm going to say you know what they're going to figure out a way to make better margin on their cars which has yet to be seen but it's fine free cash flow i'm gonna keep the exact same numbers in and then p e guys even though it's a high p e company i still if when it's the biggest company in the world with the biggest car manufacturer in the world pe is determined based on growth potential when it's the biggest car manufacturer in the world how much more growth potential does it actually have this is where we get a lot of feedback here and i get it but remember it's all great and dandy if you think 70 pe for this company 10 years from now like other youtube idiots is okay guys it's just not gonna happen maybe five years ago when it had 10 years ago and it had a lot of potential but when it's the number one mini car manufacturer in the world the growth potential isn't there you should pay a higher pe for more growth potential not for less growth potential so i'm going to go 14 i'm gonna go 18 and go 22.
i don't believe the 22 number but i'll still keep it in there and i'll do the same thing for free cash flow and finally guys our annual return our desired annual return i always do 12 and a half percent because you can do an etf for nine or ten percent so give yourself some margin of safety and give yourself a reason to actually buy the stock individually hit the analyze button guys it's just looking like it's a little overpriced and this assumes no dilution also yeah which they've very diluted 25 in the last five years so right now we have a low price about 138 a high price of 730 and a mid price of 350.
are you willing to bend your rules for a company of this magnitude i bent the rules by making these assumptions i see remember i bend rules when there's a justification tesla is growing like crazy i went and put in growth rates that i don't really put in i don't believe these this growth rate is really realistic remember guys we don't know what's going to happen a year from now to go 10 years and say they're going to have 25 revenue growth is it possible absolutely is it probable i don't know just look at the last year all the things that look at the last two years all the things that have happened that we didn't think would happen last 10 years yes in the last 10 years what has happened in this world that we didn't think we're gonna happen we have mortgage rates now five percent when a year year and a half ago they were three percent that's right who would have guessed they'd be up 66 in one year we just don't know she's this is really monitoring your downside risk if you and your friends keep talking about tesla and how wonderful everything's going to be in the future if it's not this this company could this coming could easily fall 40 one night like netflix paul wouldn't you agree it could i don't know what's going to happen all i know is that when they were at 12 40 a share and there's then their stocks and their and now they're at 8.50 but yeah they just recorded reported record earnings and they were down 12 it tells me that maybe the buying of tesla is has been exhausted everybody's going to own tesla owns tesla now so what's the upside remember to beat the market to do what everybody else is not doing when i go play firestone country club in akron ohio and my atl caddy tells me i'm wrong on tesla that's a concern that's my concern like if everybody's buying tesla it's been bought and i get worried about that my personal opinion is i'm somewhere probably closer to the 140 150 mark because i believe in in devout value investing monis probably he doesn't agree with me he thinks tesla has more upside potential and he's a great value investor i'm somewhere closer to this number sound like it sounds like a big drop would you thought tesla would drop 30-35 in the last month and a half when they had record earnings and record revenue in this bad supply chain environment you'd have thought oh my god this thing's going to the moon and it didn't so i just say exhibit some caution and go from there right now i'm just holding off on tesla
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