This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Tesla's Course Looks Destined For $150 Disappointment

NEW YORK (TheStreet) -- When discussing the strength of so-called "momentum stocks," investors like to conveniently forget that "momentum" is a two-way street. No company exemplifies this better today than Tesla (TSLA). While a dilemma remains as to whether the stock should be invested in or traded, one thing is clear; the high-end electric vehicle company has sputtered.

Shares closed Monday at $204.38 per share. Although the stock is up 37% year to date, Tesla has lost 22% of its value since shares peaked at $265 in February. Remarkably, this has occurred on seemingly no news. The reality is that no one knows how to value the stock.

Analysts not helped. Consider, of the 16 analysts that cover the stock, eight of them rate Tesla as a "hold." Only five of them have a positive rating. The remaining three believe Tesla stock should be sold. Or at best, they consider it "underweight."

Part of the confusion stems from the fact that some investors want to compare Tesla to technology companies like Apple (AAPL) and Google (GOOG), while others believe it falls more along the lines of Ford (F) and General Motors (GM).

Rich Ross, chief market technician of Auerbach Grayson, thinks Tesla fits the criteria of a falling knife. Ross believes that Tesla is in danger of pulling back to its 50-day moving average, which points to a target of $150 per share, or a 25% lower than current fair value.

While Ross may be more bearish than most, there is certainly precedent for his prediction. Apple was once a momentum stock until its peak at $705 in September 2012. Apple stock went on to lose more than 40% of its value in a matter of months. Shares of Tesla peaked at $265 in February. A decline to $150 per share would equate to a fall of 43%.

While Tesla may be suffering from a short-term overreaction, the more pressing question is about the future, and specifically what CEO Elon Musk can do to save his stock from this perpetual share-price recall. For investors, is it time to profit off of this fear or risk catching a falling knife?

Concerns of slowing growth are not going away, even though management, by virtue of the company's Gigafactory plans, hints that growth is here to stay. Tesla plans to go mainstream. To that end, the company has talked about producing a more affordable electric car. What's more, by 2020, Tesla expects to produce and sell 500,000 vehicles per year. For some context, last year it produced 22,500.

Calling these goals aggressive would be an understatement. But aggressive growth is what investors have paid for. The stock has soared more than 500% in 18 months. And even with this recent decline, the stock is still trading at a P/E well over 100 based on 2014 estimates of $1.80 per share. So aside from growth, this valuation presumes perfect execution. The company can't miss estimates going forward, or the stock will be punished for it.

Tesla reports earnings around the first week of May. While the Street loves Elon Musk, analysts have begun to take a wait-and-see attitude. Although I don't expect the stock to fall to the $150 level, current investors should park their shares for now and prepare to dollar-cost-average down in case first-quarter results disappoint.

At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,919.59 +80.85 0.48%
S&P 500 1,981.60 +9.86 0.50%
NASDAQ 4,527.5140 +19.2020 0.43%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs