- Recently, I compared Apple stock AAPL to Amazon to see which qualified as the better growth stock. Today, I introduce Tesla stock (TSLA) – Get Free Report to the conversation.
- The current year has been bad for AAPL and terrible for TSLA. But both stocks have performed superbly in the long term and may continue to do so.
- AAPL or TSLA for growth investors? To answer this complex question, I turn to (1) historical share price performance and (2) current EPS growth prospects relative to P/E.
(Read more from the Apple Maven: Why Apple Stock Could Be On The Verge Of A Santa Claus Rally)
AAPL vs. TSLA: Wealth-Producing Kings
Timing the purchase of Apple stock well (easy to do only in hindsight) would have produced gains of over 370,000% between 1982 and now. That is to say: the inflation-adjusted equivalent of about $3,000 invested back then would have been worth about $1.1 million now. Not bad.
Over such a long period of around 40 years, it is hard to find another stock worthy of de-throning AAPL as “the wealth-producing king” of our generation.
That said, Tesla stock has been at least as impressive at producing astonishing returns, albeit over a shorter time frame. Since the EV company became publicly traded, in 2010, TSLA shares have appreciated a whopping 9,330%!
Over the past 12 years, as the Stock Rover chart below depicts, it is not even fair to compare the performances of AAPL and TSLA. The latter has turned a nominal initial investment of $1,000 into $94,000 today, while Apple investors would have ended up with $17,000 instead.
Historically, therefore, TSLA has been the better growth stock. This is also evident in how much more volatile and susceptible to large drops Tesla has been relative to Apple stock – keep in mind that high risk, not only high reward, is a key trait of growth stocks:
- TSLA’s annualized volatility since 2010 has been 63% vs. AAPL’s 28%
- TSLA’s worst drop from a peak since 2010 has been 61% vs. AAPL’s 40%.
Of course, comparing a fairly young company (Tesla) against a more mature one (Apple) may not be fair. It probably makes the most sense to contrast Tesla’s performance in the past 12 years to the first 12 years of Apple as a public company, between 1980 and 1992.
But even in this sense, Tesla looks much more like a growth stock than Apple, at least historically. Here are the numbers:
- From 1980 to 1992, AAPL returned a decent (but not impressive) 13.0% per year. An initial investment of $1,000 would have grown to $4,385 in 12 years.
- From 2010 to 2022, TSLA returned an astounding 43.8% per year. As mentioned above, an initial investment of $1,000 would have grown to $94,000 in 12 years.
Remember that Apple did not have an easy start as a publicly-traded company. In addition to facing a recession in the early 1980s and another in the early 1990s, Apple nearly went bankrupt at one point. The return of Steve Jobs as CEO and the launch of the original iPhone in 2007 were needed to finally turn the company’s fortunes around.
(Read more from the Apple Maven: Apple vs. Amazon: Which Is A Better Growth Stock?)
AAPL vs. TSLA: Looking Ahead
It is easy to see that, historically, TSLA has much more of the “growth DNA” than AAPL. But investors tend to be forward-looking, so we should consider future growth opportunities as well.
Apple could be seen as a growth company due to the untapped opportunities in areas like mixed reality, the metaverse, and even autonomous electric vehicles – Tesla’s wheelhouse.
Of course, one must believe that these growth avenues could become game-changers for Apple. When it comes to the current product and services portfolio, it is hard to see how smartphones and laptops may provide much of a growth path for Apple over many years.
It is probably easier to see the growth argument for Tesla. The company has been revolutionizing the automotive industry. According to Statista, sales of battery and plug-in hybrid EVs should more than double between 2022 and 2027, and Tesla is the industry leader.
This is not even to mention other opportunities that Tesla could explore. These include battery applications outside the automotive industry and driverless technology in public transportation, including the anticipated autonomous taxi.
But let’s leave the qualitative discussion aside for a moment and focus on the numbers. According to YCharts, sell-side analysts believe that Apple’s EPS (earnings per share) will continue to grow over the next five years, but by only 11% annualized.
On the other hand, and off of a much lower base, Tesla’s EPS could climb by an annual rate of 29% over the next half-decade, according to Wall Street. Clearly, Tesla looks much more like a growth company than Apple, at least based on the expected bottom-line trend.
From a valuation point of view, Tesla better justifies its status as a growth stock by trading at a next-year P/E of 26x – much lower now than the 80x of early 2022, as the share price has tanked lately. Apple, on the other hand, commands a lower forward earnings ratio of 20x.
The Key Takeaway
I can see a good argument for why AAPL would be a better all-around stock to own compared to TSLA, considering both the risks and opportunities. But if the question is about which would be a better growth stock, then TSLA seems to be the winner.
Historically, Tesla has behaved much more like a growth stock. And looking forward, the growth opportunities seem to be better recognized both in terms of EPS growth expectations and stock valuations.
Ask Twitter
In the battle of growth stocks, which do you think will perform better in 2023: Apple or Tesla?
Land a Top Equity Research Job with Peak Frameworks
Equity research is a great career that combines deep industry analysis, financial modeling, and strategic thinking to make money in the stock market.
Many students have used the Peak Frameworks Equity Research course to break into the industry out of school, or to transition into the field from a non-finance career path. Learn from an instructor with years of experience at Goldman Sachs and J.P. Morgan.
Click on this link to learn more and use the code APPLEMAVEN10 for 10% off the course.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)