Investor Gary Black of The Future Fund LLC says the fair value price for Tesla Inc. (NASDAQ:TSLA) would be $312, reaffirming his concerns with the Elon Musk-led company’s valuation.
Tesla’s Valuation Draws Gary Black’s Criticism
In a series of posts on the social media platform X, the investor reaffirmed his view of Tesla’s valuation while also criticizing the EV maker’s bullish supporters. “Investors who refuse to compare valuation vs price are doomed to overpay for great companies like $TSLA,” he said in his post.
Black then shared his calculation for determining Tesla stock’s value. “My valuation is 2030 EPS of $7.75 x a P/E that reflects 35% long-term earnings growth,” he said.
Black said his valuation assumes 2030 earnings per share of $7.75 and a price-to-earnings multiple reflecting 35% long-term annual earnings growth using a megacap average 2x PEG ratio.
The investor then said that his calculation reflects a “discounted…14.8% risk-adjusted cost of equity.” The investor mentioned that the 14.8% figure was calculated by using a 10-year risk-free Treasury rate of 4.6%, as well as the Equity Risk Premium, which is the additional return stocks offer for risk-free investments like Treasury bills, at 6% and Tesla’s 1.7x beta, which reflects the stock’s volatility compared to other stocks.
“$7.75 x 70x / (1.148)^4 = $312,” he said. The investor then calculated his buy price for Tesla. “Buy price: $312 x 80% =$250,” Black said, sharing that he would price the stock at $250. “As my followers know, my discipline is to buy stocks at a 20% discount to their fair market value to get enough upside vs other stocks in my universe,” the investor said.
Using those assumptions, Black calculated a fair value of $312 before applying his usual 20% margin of safety, resulting in a buy price of $250.
Black also shared how investors fall in love with a company, but they should not fall in love with a stock. “Value is what you get. Price is what you pay,” he said.
The investor had earlier issued a warning, saying that Tesla’s stock could fall below $300, while Space Exploration Technologies Corp. (NASDAQ:SPCX) may also fall below $100, citing inflated valuations as AI-driven stocks have come under pressure recently.
Economist Peter Schiff had also outlined similar concerns with SpaceX, saying that the AI-induced bubble in the U.S. stock market would be popping, after he had said that the bubble had peaked around the time of SpaceX’s IPO in June this year.
Black also outlined that his company was not shorting Tesla, despite continued interest from short-sellers. “We don’t short great companies that trade at expensive valuations,” the investor said.
Gary Black on Uber
In the same thread, the investor was asked about his stake in ride-hailing giant Uber Technologies Inc. (NYSE:UBER). Black said that the Dara Khosrowshahi-led company “continues to outperform” Tesla.
He then shared an excerpt from a post the investor came across on his feed, which said that Tesla Bulls’ predictions about Uber’s “imminent demise” have been “flat out wrong” as the company continues to expand “autonomous partner initiatives.”
While self-driving is a key element of Uber’s business, the company is reportedly parting ways with Alphabet Inc.-backed (NASDAQ:GOOGL) (NASDAQ:GOOG) Robotaxi company Waymo in multiple cities after the pair ended their partnership in Phoenix.
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