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Data from J.P. Morgan Asset Management shows that individual investors typically trail the broader markets by a significant margin. For instance, while the S&P 500 Index ($SPX) returned 9.5% annually on average between 2002 and 2021, the average investor gained just 3.6% in this period. There are several factors contributing to this underperformance, which include a lack of discipline and an inability to withstand bear markets.
While stock markets can be extremely volatile, this asset class has created generational wealth for investors who stay the course in equities over time and benefit from the power of compounding returns.
Ideally, investors will want to identify a company that is rapidly growing revenue and earnings, allowing it to deliver market-beating gains. One such name is electric vehicle (EV) manufacturer Tesla Inc (TSLA) , which has thumped the broader markets since it went public on June 29, 2010.
How Much Has TSLA Returned Since Its IPO?
Tesla stock was priced at $17 per share in its IPO (initial public offering). After adjusting for subsequent stock splits, its IPO price is much lower at $1.13.
An initial investment of $10,000 in TSLA's IPO would have allowed you to buy 588 shares of the company at $17. Following Tesla's 5-for-1 and 3-for-1 stock splits, that initial stake would have increased to 8,820 shares.
Given the current trading price of $272.51, your investment would be worth a whopping $2.40 million today. That indicates a return in excess of 23,900%, compared to returns of 316% for the S&P 500 in this period.
Though early Tesla investors have enjoyed game-changing returns, let's see if the stock remains a solid growth investment at current prices.
Looking Under the Hood on Tesla Earnings
Despite its exponential returns, Tesla stock currently trades about 34% below its all-time highs, valuing it at $848 billion by market cap. The company has increased its sales from $24.57 billion in 2019 to $81.46 billion in 2022. However, due to stiffer competition in the EV space, rising interest rates, and a sluggish global economy, Tesla's revenue growth is decelerating. In Q2 of 2023, Tesla reported revenue of $24.9 billion, an increase of 47% year over year. Comparatively, it grew sales by 71% in 2021 and 51% in 2022.
Tesla enjoyed an early mover advantage for several years, and helped spearheaded the adoption of EVs in several regions, including North America, Europe, and China. But an expanding addressable market has attracted new and legacy auto manufacturers, which include Ford Motor (F), General Motors (GM), Nio (NIO), Lucid Group (LCID), and Rivian Automotive (RIVN).
To navigate a competitive landscape complicated by softer consumer demand, Tesla has lowered vehicle prices in recent months. Its gross margins in Q2 fell to around 18% compared to 25% in 2021. Its operating margin also declined to 9.6% in the June quarter from 17.2% in the year-ago period.
Analysts expect Tesla’s earnings to narrow from $4.07 per share in 2022 to $3.41 per share in 2023. After growing its free cash flows from $1.07 billion in 2020 to $7.56 billion in 2022, its free cash flows have totaled less than $2 billion in the last six months.
What's the Next Driver of Growth for TSLA?
Elon Musk, Tesla’s mercurial and controversial CEO, is betting big on the introduction of full self-driving (FSD) technology to its EV lineup. Tesla’s supercomputer Dojo is an AI-powered software installed in 5 million EVs. This figure may reach 100 million by 2030, providing the company with vast sums of data.
In fact, analysts at Morgan Stanley (MS) emphasized in a recent bullish note that Dojo can be installed in other EVs on a subscription-based model, unlocking another revenue stream for Tesla. According to the brokerage firm, Dojo might add $600 billion to Tesla’s enterprise value - prompting an upgrade to “buy” and a price target hike to $400, which marks a new Street high.
Analysts are generally lukewarm on the stock, given its outsized gains. Out of the 26 analysts covering Tesla stock, seven recommend “strong buy,” one recommends “moderate buy”, 15 recommend “hold,” and three have a “strong sell” recommendation. The average price target for TSLA stock is $242.42, which is 10% below the current trading price.
Priced at 10.66x forward sales and 84.59x forward earnings, TSLA is among the most expensive auto stocks on the planet. However, it is still the market leader in the EV sector, and continues to expand its portfolio of products and services.
Plus, the long-term outlook for Tesla remains favorable, as a report from Fortune Business Insights forecasts global EV sales to touch $1.579 trillion by the end of this decade, growing at a CAGR of 17.8% between 2023 and 2030. With all this in mind, TSLA looks like a stock to keep holding, and potentially add on dips.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
