In this segment from Fool Live, Senior Consumer Goods & Industrials Specialist Asit Sharma and senior technology specialist Daniel Sparks put the spotlight on Tesla's (NASDAQ:TSLA) improved bottom line.
The electric-car maker has gone from burning through huge sums of cash to generating well over $1 billion of free cash flow in a single quarter. As the automaker continues to scale its business, Tesla could generate massive profits in the years ahead.
In this video, Daniel takes a closer stock at Tesla's free cash flow and what it means for the stock's valuation.
Asit Sharma: So in terms of the profit on the books and the cash flow, they've had a few quarters here, and I'm not sure that these are actually sequential -- you can remind me -- but it seems like they're hitting a scale where they're able to cross that chasm and show some net income on the books, show some positive operating cash flow. Any thoughts on that?
Daniel Sparks: Yeah, I meant to highlight that, as well. I got carried away in the demand story there, but they are, they really have shown they can be consistently profitable. So $0.76 per share and a non-GAAP basis is $0.27 per share on a GAAP basis, the analyst estimate was around $0.50 cents, I think at $0.55 cents (non-GAAP) or so. Seventy-six cents was up 105% year over year, but free cash flow, which is, I think, at a fast-growing company that's very capital-intensive, gives you more insight into the way the business is scaling. They brought in $1.4 billion in a single quarter. Going into this quarter, the trailing 12-month free cash flow was $800 million. It's enormous. The transformation here is definitely real. I think that people who doubted Tesla, there might have been a lot of good reasons for their doubts a few years ago. But I think the story has changed drastically because they've hit a critical point. I think that investors should really revisit the valuation. I mean, $1.4 billion in a single quarter -- you push that out four quarters and you're talking, they could substantiate a pretty wild valuation, especially with their growth rates.