Despite recent turbulence, Tesla Inc (NASDAQ:TSLA) stock has rebounded approximately 10% from its recent lows, yet remains undervalued based on its free cash flow (FCF). This presents an opportunity for short-put income plays due to high put option premiums.
As of Tuesday morning, April 9, TSLA is trading at $178.33, marking a 9.7% increase from its March 14 close of $162.50. This uptick comes despite disappointing quarterly production and delivery results, with Q1 deliveries totaling 386,810 electric vehicles (EVs), down over 8.5% year-over-year.
However, the market appears to have already priced in these poor results, anticipating a rebound in demand later in the year. This forward-looking approach suggests Tesla’s FCF could be lower, affecting its valuation, though models already account for this.
In a Barchart article from March 27, FCF was calculated at $2.064 billion with a margin of 8.2%. Assuming a conservative 5% FCF margin going forward, analysts’ revised revenue estimates indicate an FCF estimate of $5.8 billion over the next 12 months.
Using this FCF estimate, potential price targets for TSLA stock can be determined. For instance, if Tesla were to pay out this FCF in dividends with a 1% yield, the market cap target would be $580 billion, still 2.1% higher than its current market cap of $567.9 billion. Alternatively, a 0.9% FCF yield would suggest a market cap target of $644 billion, representing a 13.5% increase.
Despite lower projected results, there is still significant upside potential for TSLA stock. Analysts’ average price targets range from 2.1% to 13.5% higher than current levels, with a consensus price target of around $192 per share.
For shareholders seeking income, shorting out-of-the-money (OTM) put options in TSLA stock presents an attractive opportunity. For example, with the May 3 expiry period, the $160 strike price, over 10% below the current price, offers a premium of $4.30 per put contract. This allows investors to generate immediate income of $430 for securing $16,000 in cash, equating to a yield of 2.6875% over just 3 weeks until expiration.
In conclusion, Tesla stock remains undervalued despite recent challenges, offering both potential capital appreciation and income-generation opportunities for investors.
Featured Image: Megapixl
Author Faith Yakubu 
