Time to Dump TSLA Stock?
Tesla Motors Inc (NASDAQ:TSLA) stock is up a staggering 70% since hitting a 52-week low on February 10 this year, rallying on upbeat guidance given during the company’s latest earnings call. Oh, and the fact that Tesla has now received about 325,000 pre-orders for its “Model 3” car since the company started accepting $1,000 deposits at the end of March didn’t hurt TSLA stock either.
But now at least one analyst believes that the party for TSLA stock might be over.
Standpoint Research analyst, Ronnie Moas, downgraded TSLA stock from “Hold” to “Sell” with a $180.00 price target. At today’s price of $250.00 a share, that implies a 28% drop in TSLA stock. (Source: “Notable Analyst Rating Changes: Tesla Motors Inc (TSLA), Verizon Communications Inc. (VZ),” Smarter Analyst, April 8, 2016.)
Moas told CNBC that he actually likes the company and is very fond of CEO Elon Musk, but he believes that TSLA stock has been unjustifiably driven higher. His sell reason had more to do with the technical aspect of the stock than the company’s fundamentals. (Source: “Ronnie Moas bearish on Tesla,” CNBC, April 11, 2016.)
“I think the valuation of Tesla is completely disconnected from what my analysis is showing me. The market is treating Tesla as if it is an equivalent of a General Motors Company (NYSE:GM) or Ford Motor Company (NYSE:F). In fact, the revenue of GM and Ford is 20x times of what Tesla is,” Moas said. (Source: Ibid.)
Moas added that the market is placing a best-case scenario on all metrics of TSLA stock and that a large part of the recent rise in the stock was due to short covering and not by investors who see value in TSLA stock. (Source: “Tesla Announces Limited Recall of Model X SUVs (TSLA),” Investopedia, April 11, 2016.)
But what about the 325,000 pre-orders? Shouldn’t that justify the TSLA stock price?
Moas says that he is very skeptical of whether Tesla can fulfill all those orders.
“They had trouble meeting expectations of 16,000 units last quarter. If people tell me, they are going to go from 100,000 units, to 500,000 units within four years, I would not bet money on that. I think there are a lot of places in the stock market to put your money other than Tesla.” (Source: CNBC, op cit.)
Moas drew comparisons to the big automakers such as Ford and General Motors whose forward price-to-earnings (P/E) ratio are about six and five times their earnings, respectively. In comparison, Tesla’s P/E ratio stands at about 80X for fiscal year 2017. (Source: “Tesla Motors, Inc.,” Yahoo! Finance, last accessed April 11, 2016.) Additionally, Ford’s and GM’s 2015 revenues were $150 billion and $152 billion respectively compared to $4.0 billion for Tesla.
“The market is treating Tesla as if they are selling 1,000,000 vehicles a year when in fact they are at 100,000,” Moas said. “The market cap at Tesla is now more than Porsche, Mazda, Ferrari and Fiat combined. The market cap of Tesla is now three times that of Peugeot.” (Source: “Tesla Motors Inc (TSLA) downgraded from Hold to Sell,” ValueWalk, April 7, 2016.)
Moas added that it will take about five to 10 years for TSLA stock to grow into its current valuation, and that is only if rivals sit on the sidelines in the electric vehicle space, which is obviously not going to happen. (Source: Ibid.)
The Bottom Line on Tesla Stock
TSLA stock has had an unprecedented bull run since February, which might warrant a pullback in the stock. Tesla is still a great company, but investors might want to take caution with TSLA stock at its current price.