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Apple justifies its huge valuation, while Tesla … not so much

The difference between two of the most popular stocks in America, Apple Inc. and Tesla Inc., stood out starkly Wednesday.

Apple AAPL, -0.77% reported a record-setting quarter, with $111.4 billion in quarterly revenue, a jump of 20%, fueled by strong demand for its products used for working and learning from home, including the new 5G iPhone 12. Apple’s shares fell nearly 3% in after hours, but held onto its stratospheric market cap of approximately $2.41 trillion.

Noteworthy in the quarter was the fact that iPhone sales of $65.6 billion soared past Wall Street’s expectations of $59.5 billion. And the new iPhone wasn’t even available during the entire holiday quarter. Dan Ives, a Wedbush Securities analyst, called the quarter a “jaw dropper” that beat even bullish whisper expectations among analysts.

Even so, analysts seemed to be a bit concerned about whether or not Apple can keep up this pace of growth, amid these ever larger numbers. Toni Sacconaghi of Bernstein Research asked Apple Chief Executive Tim Cook on the company’s conference call what he thought was a “realistic revenue growth rate” for the next five years.

“Toni, as you know, we give some color on the current quarter but not beyond that in terms of growth rates,” Cook said. “So I’ll punt that part of your question.” In his preview note ahead of Apple’s earnings, Sacconaghi asked, “The cycle appears reasonably strong, but at 31x [times fiscal 2021] earnings [estimates], what’s next?”

Cook pointed out that Apple still has “a fair amount of headroom” for market-share expansion in many areas, particularly in some emerging markets like India. Another stellar performer was the company’s services business, which set an all-time record. Apple also has a quarterly dividend of 82 cents share, and an ongoing stock buyback plan for investors that helps justify its lofty valuation.

In contrast, Tesla TSLA, -2.14%, which soared to new highs in the past few months, disappointed investors by missing Wall Street’s expectations, even though it managed to squeeze out its sixth consecutive profitable quarter. But once again, Tesla achieved that profitable quarter via regulatory credits of $401 million, a point that is much-debated among investors.

“My fourth-quarter estimates assume roughly $550 million in boosts from energy credits and unusual items, which may likely account for most, if not all, of Tesla’s reported ‘profit’ — as has happened in each of the past five quarters,” wrote Vicky Bryan, founder and CEO of the Bond Angle, in a preview note on Tesla’s earnings.

Read more about how Tesla plays smoke and mirrors with profits.

Since October, its stock has more than doubled, at one point hitting $880 a share. It currently has a valuation of approximately $837 billion. On Wednesday, its shares sank around 5% in after-hours trading, as Chief Executive Elon Musk tried to rally the troops on the company’s earnings call and in the quarterly shareholder slide deck.

“2020 was a defining year for us on many levels,” Musk said. “Despite a challenging environment, we reached an important milestone of producing and delivering half a million cars.” He said Tesla delivered almost as many cars as it produced.

But on the downside for investors, Musk & Co. also noted in their shareholder letter that they were simplifying guidance because of the large number of products the company is producing. “Over a multiple-year horizon, we expect to achieve a 50% average annual growth in vehicle deliveries,” Tesla said. “In some years we expect to grow faster, which we expect the case to be in 2021.”

That guidance was less precise than in the past. For example, in the third quarter of 2020, Tesla said it had the capacity to deliver 500,000 vehicles, and that remained the company’s target for 2020.

Musk also was asked about his past bullish projections that Tesla would achieve full, Level-5 autonomy in 2021. He has also predicted that the company would have fully self-driving robo-taxis by the end of this year.

“This is happening rapidly because we’ve got so much training data with all the cars in the field and the software is improving dramatically,” Musk said. He also said that the holy grail right now is “auto labeling” of the video that is being processed by the vehicles, but he did not really describe its timing or progress. “We’re moving everything towards labeling,” he said.

Last month, Tesla joined the venerable S&P 500 SPX, -2.57%, a move that will place the stock automatically in a huge variety of index funds based on that list of established growth companies. But disappointments can take momentum out of a stock, and those with hefty valuations like Tesla are even more at risk.

In the end Wednesday, the established Apple proved its mettle, while Tesla again begged more questions about its lofty ascendance.

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