May Insights Into Auto Stocks: Tesla Inc (NASDAQ:TSLA)

Tesla Inc (NASDAQ:TSLA), a US$50.00B large-cap, operates in the automobile industry which is a major consumer of key commodities such as copper and steel, making the car manufacturers and suppliers significant players in the global economy. Upcoming challenges facing the sector is navigating the path from current automobile models to driverless cars, requiring high capital outlays in emerging technology. The limitation of automobile incumbents is an opportunity for tech giants such as Apple and Google to develop their own software components behind networking, autonomous and communication capabilities of automobiles. Automobile analysts are forecasting for the entire industry, a strong double-digit growth of 14.39% in the upcoming year , and an optimistic near-term growth of 26.36% over the next couple of years. However, this rate came in below the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the automobile sector right now. Below, I will examine the sector growth prospects, as well as evaluate whether Tesla is lagging or leading its competitors in the industry. View our latest analysis for Tesla

What’s the catalyst for Tesla’s sector growth?

NasdaqGS:TSLA Past Future Earnings May 7th 18

The increasing presence of tech firms in the auto industry cannot be overlooked or discounted by OEMs. In the next decade, software integration will likely have a significant impact on the auto industry, given the alignment of their expertise – they are adept to connecting value-add components to created networks for information, efficiencies and experiences. Over the past year, the industry saw growth in the twenties, beating the US market growth of 13.43%. Tesla lags the pack with its earnings falling by more than half over the past year, which indicates the company has been growing at a slower pace than its automobile peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 40.66% in the upcoming year. This future growth may make Tesla a more expensive stock relative to its peers.

Is Tesla and the sector relatively cheap?

Automobile companies are typically trading at a PE of 10.19x, lower than the rest of the US stock market PE of 18.26x. This illustrates a somewhat under-priced sector compared to the rest of the market. Furthermore, the industry returned a higher 14.36% compared to the market’s 11.10%, potentially illustrative of a turnaround. Since Tesla’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Tesla’s value is to assume the stock should be relatively in-line with its industry.

Next Steps:

Tesla’s industry-beating future is a positive for investors. If Tesla has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the automobile industry. However, before you make a decision on the stock, I suggest you look at Tesla’s fundamentals in order to build a holistic investment thesis.

Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has TSLA’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Tesla? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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