Tesla, one of the most valuable companies in the world, is part of a select group with market cap greater than $1 trillion. The electric car maker, led by influential CEO Elon Musk, is also one of the most hyped stocks in the world with the highest price-to-earnings ratio among the top 20 largest companies worldwide.
Nearly all bears are skeptical about Tesla stock’s (TSLA) - Get Tesla Inc Report valuations. But bulls support their case on Tesla’s disruptive technology, business model and “the Elon Musk factor”. Today, we take a closer look at what bulls and bears have been saying about TSLA stock.
(Read more from Wall Street Memes: Zscaler Stock Sells Off After Earnings, Experts See 20% Upside)
Tesla’s bull case
One of Tesla’s most emphatic bulls is Wedbush’s Daniel Ives. The tech analyst see TSLA reaching $1,400 share price in the next 12 months as a base case and $1,800 as a bull case.
He believes that Tesla has a role as a “disruptive technology vendor” instead of a traditional auto marker. The company has huge opportunities in China, which accounts for a big chunk of the electric vehicle deliveries. Mr. Ives has added:
“While PR/safety headwinds were front and center in China earlier this year, we have seen this demand trend reverse aggressively in a bullish way for Tesla into year-end, with the company now on a ~50k monthly run-rate for China into 2022”.
The analyst is not only bullish Tesla, but the entire electric vehicle market. He sees “massive transformation” in the auto industry generating a $5 trillion market opportunity for the next 10 years. Among winners and losers, Dan sees this industry being spearheaded by Tesla.
The Wedbush analyst did not forget to mention the chip shortage crisis, which has impacted Tesla and the entire auto industry this year. However, the analyst believes that these issues are transitory, and robust demand for Model 3 and Model Y should outpace supply by 15%.
Just as bullish as Wedbush, Jefferies’ Philippe Houchois increased his TSLA price target to $1,400 and maintained his buy recommendation on the stock. The analyst attributed his optimism to the impressive results of Tesla’s last two quarters. Third quarter gross margins of nearly 30% brings hope of a profitable EV space, according to the analyst.
Mr. Houchois also added that Tesla is getting to a place in which "it can balance affordability and speed”, which is in line with Elon Musk’s vision. Lastly, the analyst mentioned Tesla’s capacity to scale up beyond what other EV original equipment manufacturers (OEMs) could.
"With an acceleration of self-funded growth in Q3 and unheard-of returns at a brand price point moving towards volume segments, Tesla looks more scaled up today than most OEMs and in position to turn the legacy zero-sum-game into a negative one."
The Tesla bear case
On the bear side, BNP Paribas’ Stuart Pearson recently reiterated his sell recommendation on TSLA. He did so despite raising the price target to $780, which still implies 23% downside risk.
Pearson sees competition as a threat for Tesla. The company is making “minimal progress” on new income streams, raising the possibility of a fresh capital raise, and the trillion-dollar valuation is hard to justify. However, his price target bump is based on Tesla’s near-term pricing tailwinds.
The most bearish of all is Barclay’s Brian Johnson. In his latest Tesla rating, published after the company delivered earnings on October 20, the analyst noted that Tesla’s management “quietly flagged several headwinds” during the earnings call. These include commodity costs, production risks, batteries delays, and full self-driving way below Tesla’s robotaxi potential.
The Barclay analyst has a sell recommendation on TSLA and forecasts a sharp drop of 72% in share price to only $300 ahead.
Is the price right?
Looking at a company’s business fundamentals is only half the work needed to find a good stock. How much one pays to own the shares is a key factor in the success of any investment. This is why valuation analysis is so important.
Alpha Spread’s user-friendly platform allows you to estimate a stock’s fair value –through valuation multiples, discounted cash flow, and more. I believe that the service is a must for anyone looking to own the right stock at the right price. Check out alphaspread.com and get started with a 7-day free trial.
(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)