The new ETF director who brought Musk’s EV company to the No. 1 said

Black, a former Goldman Sachs chief investment officer and mutual fund CEO Janus Henderson, said in a Nov. 30 interview that he still thinks Tesla is a bargain for long-term investors.

By traditional measures, Tesla’s stock looks very expensive. The stock closed at $1,145 on November 30 and is up 62% in 2021, following a 743% gain in 2020. Tesla trades for 136 times the 2022 consensus earnings estimate of 8. $4.43 a share among analysts polled by FactSet. Meanwhile, the price-to-earnings ratio of the benchmark S&P 500 Index of which Tesla is a member, is 20.8.

Amazon.com Inc.
AMZN,
-1.38%

provides a guiding example of a stock that many investors have avoided for decades because of its high P/E valuation. Here’s a chart showing the internet retailer’s forward P/E ratio (based on 12-month rotating consensus earnings estimates) for the past 20 years:

Amazon’s average forward P/E for that period was 99.5. The S&P 500 is also included on the chart, with what appears to be a flat line at the bottom. The size reflects a spike in Amazon’s valuation as analysts expect the company to show low margins as it drives cash flow to business expansion, including delivery times. industry leader for e-commerce platforms and Amazon Web Services.

Now look at Amazon’s 20-year total returns and metrics:

That’s 30.881% profit for Amazon. You can see many periods of decline or periods of weakness in the chart, when investors have to be patient, such as the period between the peak in late September 2018 and April 2020, when the stock last prices have also increased.

The bottom line is that continuing to expand at a rapid rate can help a company “grow in its valuation,” to use Black’s words.

Even now, Amazon trades at nearly 69 times the consensus forward earnings estimate. That’s still a high P/E, and it’s possible that some of the same naysayers from five, 10, 15 or 20 years ago continue to believe it’s too late to jump into the race.

The Tesla Controversy

Black said he likes stocks with “controversy.”

As for Tesla’s case, he said the debate is whether the company can maintain its electric vehicle market share while global EV adoption grows. He expects Tesla to increase the total addressable market (TAM) as new products, including the Cybertruck, are expected by the end of 2022, and a new Tesla compact model is expected in 2023. , along with increasing production at existing plants and opening new plants in Texas and Germany.

All subsequent numbers are for battery electric cars, or BEVs. That means plug-in hybrids are excluded.

Tesla sold an estimated 386,000 electric cars in the first half of 2021, according to EV-Volumes.com. 3%.

The case of black for Tesla’s value today

Based on his own estimates, which combine third-quarter figures provided by Bloomberg, EV-Volumes.com, and industry sources to the Futures Fund team, Black expects BEV adoption rates around the world. world will grow to 6% in 2021 from 3% in 2020. , and continue to grow to 30% in 2025. Meanwhile, he expects Tesla to have a 21% market share.

Those estimates point to a compound annual growth rate (CAGR) of 56% for BEV sales in the industry, with a compound annual growth rate of 55% for Tesla sales. Black also estimates a 59% CAGR for Tesla earnings per share through 2025.

Black’s estimate of Tesla’s market share is higher than EV-Volumes’ numbers for the first half of 2021 suggest due to supply constraints.

“You would wait six months now if you ordered a new Tesla. When new factories come online, they can gain more market share,” he said.

These Twitter posts include estimates that support Black’s data:

Going further, Black estimates Tesla will earn $12 a share in 2022, well above the consensus EPS estimate of $8.43. Controversial, but this underlines his investment thesis. He expects EPS to continue to grow to $40 in 2025. Based on a closing price of $1,145 on Nov. 30, that P/E would be 28.6 — not high for a company that is growing. growing so quickly.

Expectations of continued rapid growth for Tesla not only explain Black’s enthusiasm for the stock but also that of other money managers.

Long-term thesis in depth

Going back to the numbers, Black lists what he calls four “components” for electric vehicles: battery range, performance, technology and safety.

While the competition is catching up on the battery range, he said that in terms of performance and technology, Tesla is still ahead of the competition. He added that Tesla has the highest number of fast-charging stations available, and that competing electric drivers can buy cheap adapters to use Tesla’s stations and can feel the envy of Tesla owners. While waiting.

To be on the safe side, he said Tesla’s track record was good, and cited General Motors Co.
GM,
-2.15%

recalling Chevrolet Bolts because of the risk of battery fire, and GM’s guide to customers on how to limit that risk.

Ultimately, Black addressed concerns that increased competition in the electric vehicle space would hurt Tesla’s market share or make it less profitable.

Black cites Amazon as an example, citing skeptical investors years ago who had expected traditional competitors to regain market share from Amazon as they built up their online selling capabilities. me. We all know this didn’t happen.

We can all be sure that the world will continue to change rapidly for all vehicle manufacturers as purchasing habits change and governments continue to push for a rapid transition. to electric cars.

Black cites the Chinese government’s partnership with Tesla, which opened a factory in Shanghai in 2019, as a long-term boon not only for Tesla but also for the entire Chinese electric vehicle market.

“You throw a catfish in with all the competition to keep them aggressive,” he said, referring to this. New York Times article.

A new catalyst for Tesla and its rivals in the US market may be near. President Biden’s “Build Back Better” spending package, if passed by Congress, would potentially raise the 200,000-vehicle limit to a $7,500-per-vehicle tax credit for electric vehicles. Tesla and GM have exceeded that limit.

Black expects the two new plants to double Tesla’s production capacity. In the near term, Tesla CEO Elon Musk completes the sale of 10% of his Tesla shares may relieve pressure on the stock price. Black also expects bond ratings agencies to upgrade Tesla’s credit rating to investment grade because of its strong cash flow and relatively low debt levels.