Stocktake: Tesla profitable, but still expensive

Tesla shares spiked higher after the electric car maker beat earnings last week following "our best quarter in history", as chief executive Elon Musk put it. However, the results are unlikely to satisfy Tesla sceptics.

Yes, Tesla has now reported five consecutive quarterly profits. However, the last four quarters would have been unprofitable were it not for Tesla selling pollution credit sales to other manufacturers who don’t make enough green cars to satisfy regulatory demands.

In any event, Tesla sales are up 15 per cent over the last year, notes Compound Capital Advisors' Charlie Bilello, whereas the stock is up 750 per cent over the same period. Trading at two times sales a year ago, it now trades on more than 16 times sales.

Consequently, Tesla is now worth more than $400 billion – eight times as much as GM, 10 times as valuable as BMW, and 13 times as valuable as Ford.

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Bulls dismiss such comparisons, saying Tesla should be valued like a high-margin technology stock. A recent analyst note from Needham queried that assumption but added that, even if it were true, Tesla still looks expensive.

“We’ve never seen a stock rise that much that fast with such little regard for past fundamentals,” said Needham. Tesla’s fundamentals may look better following last week’s results, but the company’s stratospheric valuation looks as rich as ever.