Is Tesla Motors Inc (NASDAQ:TSLA) a $250.00 stock?
The short answer is yes, it was. (Note the past tense.) That’s because the stock was trading at that level just over a month ago, so a $250.00 price target really isn’t that much. The impressive part is that the bank that gave Tesla stock this price target happens to be one of the biggest players on Wall Street—Goldman Sachs Group Inc (NYSE:GS).
Goldman Sachs Reserving Model 3
On Wednesday, May 18, Goldman Sachs upgraded Tesla Stock from “Neutral” to “Buy” with a six-month price target of $250.00. That represents a potential upside of 22% compared to Tuesday’s closing price. (Source: “Goldman Upgrades Tesla, Saying ‘Putting in Our Reservation for the Model 3’,” CNBC, May 18, 2016.)
In a note to clients, the bank wrote, “While we believe the volume targets are ambitious, Street and investor expectations seem more grounded and following a 23% decline in the share price post the Model 3 unveil, we do not believe Tesla shares are fully capturing the company’s disruptive potential.” (Source: Ibid.)
For that reason, Goldman said they are “putting in our reservation for the Model 3.” (Source: Ibid.)
What’s so special about the “Model 3”? Well, as it turns out, Tesla’s Model 3 introduction was the biggest consumer product launch in history. In the first week of taking deposits, the company received over 325,000 reservations. What’s even more impressive is that Tesla did it without spending a penny on advertising or paid endorsements. (Source: “Tesla First Quarter 2016 Update,” Tesla Motors Inc, May 4, 2016.)
And that number was just a start. By mid-April, Model 3 reservations were almost at 400,000.
To reserve a Model 3, you have to put down a $1,000 deposit. So, with these preorders alone, Tesla just received $400 million in zero-cost financing. (Source: “Tesla’s Model 3 Reservations Rise to Almost 400,000,” Fortune, April 15, 2016.)
However, what investors care more about is whether Tesla can carry out its plan and fulfill those orders. If it can, the company could really become a disruptive force within the auto industry.
Elon Musk tweeted last month that the selling price of a Model 3 with an average options mix was around $42,000. If those 400,000 preorders translate to deliveries, they would bring in $16.8 billion of revenue. This amount is enormous given that in fiscal 2015, Tesla generated $4.05 billion in GAAP revenue. (Source: “Elon Musk’s Tweet,” Twitter, April 1, 2016.)
Of course, for Tesla to deliver those electric vehicles (EVs), it needs to ramp up production. Previously, the company said it would produce 500,000 cars by 2020. Earlier this month, Tesla announced that it had advanced its 500,000-car build plan by two years to 2018.
Regarding this matter, Goldman admits that “the volume targets are ambitious,” but still believes that at its current price, Tesla stock is yet to “fully capture the company’s disruptive potential.” (Source: CNBC, op cit.)
On the technical side, there is also an argument for Goldman’s bullish outlook.
Tesla’s Stock Chart
Chart courtesy of www.StockCharts.com
Tesla stock’s climb from February to early April has been astonishing. In just two months, it surged a whopping 85%. Then came the inevitable retracement, which sent TSLA stock falling to just above $210.00 today.
After a huge gain like this, there is a tool that can be used to identify key support and resistance levels in a stock—it’s called the Fibonacci retracement. Basically, you draw a trend line between two extreme points in Tesla stock’s big jump and divide the vertical distance by the key Fibonacci ratios.
In this case, you can see that the 50% retracement level—corresponding to a price of around $205.00—could become a support for Tesla stock. The decline was sharp at first, but as the stock approached the 50% retracement level, the slope became flatter. Judging by the movement in the last few trading sessions, Tesla stock could very well bounce back from that support. Goldman Sachs’ upgrade certainly helps too.
The Bottom Line on TSLA Stock
Tesla is a high momentum stock. When bullish sentiment built up approaching the Model 3 launch, shares soared through the roof. When concerns started to rise about its production capacity, Tesla stock plunged. This time, with Goldman Sachs’ upgrade, TSLA stock might just pick up some upward momentum again.