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Should Tesla (TSLA) Be Considered A Meme Stock?

By market cap, Tesla is the world’s largest automaker – by a long shot. But Tesla's bears claim that the company is trading like a meme stock and has an unsustainable valuation.
  • Many Tesla critics claim that the company, led by Elon Musk, is fraudulent and its stock price is untenable.
  • Tesla has traded like a meme stock in recent years. Shares of the world's largest electric vehicle producer have returned about 1655% over the past thirty-six months alone.
  • Today, Tesla’s market cap is near $1 trillion. At such a massive size, can it still be considered a meme stock?
Figure 1: Should Tesla (TSLA) Be Considered A Meme Stock?

Figure 1: Should Tesla (TSLA) Be Considered A Meme Stock?

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The Tesla Critics

Tesla  (TSLA) - Get Free Report has legions of fans, but it has also generated plenty of criticism over its cars, its business practices, and its stock valuation.

One online group of Elon Musk critics and Tesla short sellers - called TSLAQ - aims to "change the mind of Tesla stock bulls and the media." The group uses social media platforms such as Twitter and Reddit to share their opinions and analysis of Tesla stock.

TSLAQ members believe that Tesla is a fraudulent company and that the company's valuation is grossly disproportionate to what it actually delivers. The group points to Tesla’s several controversial legal cases, including serious investigations being conducted by the SEC and DOJ, as evidence of wrongdoing.

There is even an extensive Wikipedia page dedicated to listing the many allegations of fraud, safety, compliance, environmental, and workplace culture issues as well as the unfulfilled promises of Elon Musk,

There are also some well-known critics in the market. A few months ago, the former head trader at FrontPoint Partners, Danny Moses (Danny was featured in The Big Short) revealed that he has a short position in Tesla.

According to Moses, Tesla represents everything that is wrong with the market. The market has ignored disappointing earnings reports, rounds of layoffs, and the fact that wages can't keep up with inflation. Moses called Tesla "the original meme stock" because its share price does not match its fundamentals.

The demand among Tesla bears is such that this year, AXS Investments launched a single-stock ETF for those who want to bet against Tesla, the AXS TSLA Bear Daily ETF (TSLQ). The ETF uses an aggressive derivatives strategy and is aimed at sophisticated investors or traders who have a thorough understanding of the risks involved in leveraged investing.

Is Tesla a Meme?

Meme stocks usually have the same key characteristics. These include stretched valuations, volatile share prices, and great popularity among retail investors.

Tesla partially ticks these boxes. TSLA does have apparently stretched valuation multiples. Currently, Tesla's price-to-earnings ratio is 91x, an incredible 850.51% greater than the industry average.

However, it is worth noting that Tesla stock is priced for its growth potential, which is very promising. Although the electric vehicle (EV) market is still the subject of much speculation, Tesla is the largest EV manufacturer globally. It could be at the helm of the largest transformation the automobile industry has undergone since the 1950s.

Analysts expect Tesla’s deliveries to grow 43.7% next year. That’s compared to just 37.9% for the industry. The company’s own target is a 50% year-over-year growth in vehicle deliveries. And this year, according to Goldman Sachs, Tesla is expected to deliver about 1.4 million units.

Tesla's recent track record has also been phenomenal. Sales over the last five years, on average, have been up 46%. That’s compared to an industry-wide drop of 2.7% over the same period.

This goes a long way towards explaining Tesla’s astounding 1081% share price growth over the past five years. Tesla has made its shareholders - including many retail investors - very happy.

Tesla’s balance sheet also looks solid. The company boasts a $19 billion cash position with only $6.6 billion in debt. It also sports above-average profitability for the auto industry, with margins standing at 27% versus an industry average of 18%.

Tesla's return on assets of 26%, compared to 10.8% for the industry overall, shows how well it is utilizing investors' money.

Even if skeptics insist that Tesla behaves like a meme stock, its dominance in the EV market, its robust financial condition, and its promising growth potential are undeniable.

Meme Stock or Not, Wall Street Experts Have a Bullish View on TSLA

Whether Tesla is a meme or not, according to Wall Street experts, the company is the real deal. The consensus rating puts the stock at a “moderate buy.”

Among the thirty analysts' ratings offered over the last three months, eighteen say that Tesla is a buy, six are neutral, and only five have a sell recommendation. The average Wall Street price target for Tesla stock is $312 – which implies an upside of almost 10% from the most recent share price of $288.59.

Tesla bulls like Wedbush analyst Dan Ives – who has a price target of $360 – see 50% growth in YoY delivery units guidance for 2022 as enough to justify buying the stock. According to Ives, Tesla is the great EV pick because the company still owns the EV world, while the competition is still "paying rent."

On the bear side, Bernstein analyst Toni Sacconaghi, with a $150 price target, considers the EV manufacturer's valuation to be too stretched. The analyst sees TSLA's 50% annual growth target as overly-ambitious, especially given lower-than-expected volumes coming from the Berlin and Austin gigafactories.

(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 Wall Street Memes)