Gary Black Questions Tesla's Sky-High Forward P/E Ratio: 'Long-Term Growth Rate Needed To Justify a 180X P/E Would Cause Tsla Market Cap To Be Bigger'

Gary Black, Future Fund LLC’s managing director and a prominent market analyst, has expressed concerns about Tesla Inc.’s TSLA high forward price-to-earnings (P/E) ratio, questioning the sustainability of its current valuation.

What Happened: In a detailed thread on X on Saturday, Black pointed out that Tesla’s forward P/E ratio stands at a staggering 180x. He noted that no trillion-dollar market cap company in stock market history has traded at such a high forward P/E ratio.

Black argued that the long-term growth rate required to justify such a P/E would make Tesla’s market cap larger than Apple Inc. AAPL and Microsoft Corp. MSFT, which he deemed “insane.”

“The long-term growth rate needed to justify a 180x P/E would cause TSLA market cap to be bigger than $AAPL and $MSFT, which seems insane since both have huge TAMs, unassailable brands, and highly predictable future cash flow streams,” he said in the post.

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Black criticized Tesla bulls who dismiss his argument by claiming that the 2025 P/E is irrelevant. He emphasized that a stock’s valuation is the present value of all future cash flows, discounted back at a risk-adjusted cost of capital, plus net cash. To disregard P/E, according to Black, is equivalent to ignoring valuation when making an investment decision.

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“TSLA bulls who pretend they understand finance dismiss my argument that TSLA's valuation looks stretched by saying the 2025 P/E is irrelevant. Rule #1 in investing is buy low, sell high. Rule #2 is price is what you pay, value is what you get. Arguing that P/E doesn't matter to an investment decision tells me the person doing the arguing has no valuation discipline and is just buying concepts, rather than on some assessment of value vs price,” Black continued.

Why It Matters: Black’s comments come at a time when Tesla’s stock has been under scrutiny due to its high valuation. Despite the company’s impressive growth, some investors and analysts have raised concerns about whether its current stock price accurately reflects its future earnings potential.

Black’s argument adds to this ongoing debate, highlighting the importance of traditional valuation metrics like P/E in assessing a company’s worth.

While Black clarified that he doesn’t foresee a situation where he would short Tesla, his comments underscore the need for investors to exercise caution and conduct thorough valuation assessments before making investment decisions.

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