In this article, I’ll talk about Tesla stock’ s underperformance in the short term, its growth prospects over the next five years or so, and how much it’s worth.

In the last month or so, Tesla ( NASDAQ:TSLA ) hasn’t done as well as it could have. Taking a longer view, the CAGRs for Tesla’s most important financial metrics show that the company will continue to grow quickly over the next five years. With a forward P/E multiple of 33.8, Tesla’s valuation has also come back to a more attractive level. After thinking about how Tesla will do in the next five years and how much it’s worth now, I’ve decided to change my investment rating from “Hold” to “Buy.”

Tesla’s Critical Metrics

In absolute and relative terms, the performance of Tesla’s share price over the past few months has been bad. Since Tesla announced its financial results for Q3 2022 after trading hours on October 19, 2022, the stock price has dropped by 17.7%. During the same time period, the S&P 500, which is a broad measure of the stock market, went up by 9.0%.

The key headline number for Tesla, EPS of $1.05 in Q3 2022, was 5% higher than the consensus estimate of $1.00 from sell-side analysts. But as shown by what happened to Tesla’s stock price after it announced its results, the company’s bottom line for the third quarter was better than expected, but that wasn’t what investors cared most about.

Instead, investors were most interested in Tesla’s gross profit margin for cars.

After accounting for Zero Emission Vehicle (ZEV) credits, Tesla’s non-GAAP adjusted automotive gross profit margin fell by 200 basis points, from 28.8% in Q3 2021 to 26.2% in Q3 2022. S&P Capital IQ data shows that Tesla’s non-GAAP adjusted gross margin for the third quarter was 0.6 percentage point...

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