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Tesla’s value drops $60bn after investors fail to hail self-driving ‘Cybercab’
(www.theguardian.com)
this post was submitted on 13 Oct 2024
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Market Cap of a company is sort of a meaningless number. As in, it's shares in existence times price per share, which is just another way of saying its the share price. If somebody were to sell $100 Billion worth of Tesla shares, the market price would plummet and he'd not get the $100 Billion the shares were originally worth.
Of course, a rule of thumb is that a company is worth 20 times it's annual profit, or its revenue. So, by that valuation, Tesla is worth 28 Billion dollars, or 25.5 Billion dollars if we go by revenue. (I'm surprised that both approaches lead to results so close to each other) Compare with a market cap of 682,47 billion, we can see that Tesla is ridiculously overvalued. So, I guess you should go and buy puts on Tesla. Or sell your shares if you have any.
But you're comparing profit "apples" to (meaningless) market cap "oranges". Almost everything looks overvalued that way.
Looking at a different example, Ford's market cap is $42.61e9, and its revenue is $47.81e9, while the profit is $1.83e9, 20 times of which is $36.6e9. If we average both of them we get $42.205e9. So Ford seems to have about the right valuation.
So it's not meaningless then, it's useful for value investing strategies.
I suppose that's true. But it just bothers me when people talk about the market cap like it's an amount of money that exists somewhere, instead of being an abstract valuation.