Tesla (NASDAQ: TESLA) closed the week in positive territory. This is after news that the company turned cash flow positive in Q3. This is one company that has been taking in money for years, and the fact that it is now making money is an indicator that years of investments are finally paying off. Going into the future, Tesla will be one of the companies that could record exponential growth.
The company is favored by the fact that market sentiment is changing in favor of electric cars. As the effects of climate change become more apparent, regulations around vehicle emissions will become tighter. This favors electric car companies like Tesla. Tesla has already built a strong brand name in this market, which gives it an edge in the market relative to the other car companies that are looking to get into the electric cars market.
Over and above that, Tesla is able to meet all its debt obligations and also expand its operations without having to rely on external financing. The company has an operating cash flow of $1.37 billion. This operating cash flow also gives Tesla a good chance to easily access financing in case it needs it for expansion. That’s because, by having a positive operating cash flow, Tesla proves to financiers that it has the capacity to pay for any finances that it receives from external backers.
However, in spite of all these, Tesla (NASDAQ: TESLA) carries some risks. One of the biggest risks to Tesla is that it has a negative free cash flow. This means that while Tesla can meet all its short debt obligations with ease, it might not be in a position to run in case it fails to access financing. For instance, in the case of liquidity problems such as those experienced in 2008, Tesla might be in a challenging position. That’s because, without levered free cash flows, it means that to make any major investments, it would need to rely on external financing, and if its inaccessible the company could go through some challenges.
However, these challenges are to a large extent offset by Tesla’s growing revenues. The company’s revenues have been growing at an exponential rate. It’s quarterly revenue growth (yoy) of 128.60% is prove to this company’s revenue growth. This means that in the long run, the company will be in a position to build enough cash flows to cushion itself from any market shocks in the future.
On the basis of these factors, Tesla (NASDAQ: TESLA) comes across as a high risk-high return stock. Presently, the company is making investments as well as betting on new markets. Once these investments begin to pay off, Tesla’s stock could rise fast. Tesla’s investments are already beginning to pay off. The company has turned cash flow positive. This means that after making heavy investments in the last couple of years, it is finally paying off. For instance, if Tesla manages to gain significant market share in the Chinese market, it could perform well in the coming decade.