TSLA - Tesla: Inventory Does Not Lie

2024-06-12 14:47:56 ET

Summary

• I am concerned about Tesla, Inc.'s growth trajectory and valuation multiples given the recent inventory buildup.
• I view the buildup as a clear indication of softening demand for its cars and broader overcapacity in the EV space.
• I also have skepticism regarding its CFO's confidence in reversing inventory buildup in the near future.

TSLA stock has an inventory buildup

For the analysis of growth stocks like Tesla, Inc. ( TSLA ), I kept going back to timeless insights from Peter Lynch. One key insight I learned from Lynch involves the following use of inventory data :

To start, unlike many other financial data that are more open to interpretation, inventory is one of the less ambiguous financial data. Lynch also explained why inventory levels can be a telltale sign of business cycles. Especially for cyclical businesses, inventory buildup is a warning sign, which indicates the company (or sector) might be overproducing while the demand is already softening. Conversely, depleting inventory could be an early sign of a recovery.

For further details see: