Wall Street has an old adcon that investing has nothing to do with right or wrong, it’s just about making money. That’s a very a good phrase for investing in Tesla investors. Analysts continue to analyze Tesla in terms of financial fundamentals and valuations, arguing that the market is mispricing it, but Tesla’s share price is rising and investors have been able to make money. Tesla shares surged 13 percent on Monday and 74 percent in August, their best monthly performance in more than seven years. Tesla announced this week that it would issue $5 billion in stock.
Of course, Tesla’s biggest investor should be Musk, Tesla’s biggest shareholder and soul figure, who is now the third richest man in the world.
Among the analysts who are short of Tesla is Joseph Spak of RBC Capital Markets, who said on January 23, 2019 that the analysis underestimated a key valuation point: investor demand for clean cars appeared to be unseeded. Tesla shares were trading at $57.52 at the time. The analyst has now raised Tesla’s target price from $170 to $290, but it is still 42 percent because of Tesla’s closing price on Monday.
On the fundamentals, Tesla’s investors also have their own “bottom”. Most fundamentally, Tesla has made four consecutive quarters of earnings, so Wall Street thinks it is wrong to lose three of the past four quarters. Tesla delivered far more electric cars in the second quarter than expected, despite concerns about the negative impact of the new crown virus pandemic.
But Tesla’s recent surge has nothing to do with “fundamentals.” The company’s announcement on August 11th, for example, would not change any fundamentals, but its share price had risen more than 80 per cent by Monday.
According to a survey of 36 analysts, 81 percent of analysts do not recommend buying Tesla stock, and only 19 percent rate Tesla as a buy investment. And of the 36 analysts surveyed, only Jefferies’ Philippe Houchois gave a target price of $500, above Tesla’s closing price on Monday but below Tuesday’s closing price.
Half of the analysts surveyed gave a neutral rating, with 11 (31 per cent) giving a sell rating, and the average target price for all analysts was $261.85, 47 per cent because of Monday’s close.
Wind Financial Terminals also showed that analysts had a “mixed” rating on Tesla’s investment ratings, with a comparable sell-down and buy rating.
Such comparisons also occurred in the first few months of this year, when a similar number of analysts were shorting Tesla after the global pandemic in March, when analysts gave an average target price of $101.86, 2.8 percent because of Tesla’s closing price on March 31. Since then, Tesla’s share price has soared, reaching $464.3 billion on Monday, the seventh-highest U.S. company by market capitalisation.
Joseph Spak explains that Tesla’s surge has forced many portfolio managers to increase their positions “just to keep up”. He also believes investors are willing to show more patience and look further to the future to assess the company. “We continue to believe that Tesla is overvalued,” the analyst said in a letter to customers.
Of course, Joseph Spak acknowledges that Tesla’s leadership in the new energy track, low financing costs, ability to attract talent, brand appeal, and knowledge of how to “tell stories and grasp big trends” can all influence share price movements. Still, the analyst believes Tesla’s share price will eventually match the company’s fundamentals.
Overall, Joseph Spak argues, Tesla’s biggest risk to its investors is not the good news or bad news from fundamentals, but how its investors interpret it.
The next big potential news catalyst is Tesla Battery Day, scheduled for September 22, and Wedbush analyst Dan Ives said recently that he expects some potential “game-changing” developments. One development is the “million-mile” battery, which in theory would support electric cars to travel 1 million miles, which would allow Tesla to mile more miles than its traditional gasoline-powered car rivals.
In addition to valuation risks, some of the most significant risks listed in Tesla’s 20-page “risk factors” list in its latest quarterly report on July 28th (so far, these risks are not important to Tesla investors):
I. “Highly dependent on CEO Elon Musk Musk” ;
II. “The adverse effects that have been and are likely to be adversely affected in the future by the new crown virus pandemic, whose duration and economic, d’or social impact are difficult to predict, which may seriously damage operations, prospects, financial situation and operating results”;
III. “Delays or other complications in the design, manufacture, release and production ramps of vehicles, energy products and product features may be experienced in the past and in the future, or manufacturing cost targets may not be achieved, which may impair the brand, business, prospects, financial position and operational results”;
“Future growth and success depend on consumers’ willingness to adopt electric vehicles, especially our cars. operating in the automotive industry, which is generally vulnerable to cyclicality and volatility”;
V. “Any problems or delays in meeting the projected schedule, costs and production or financing of the Shanghai Super plant, or any difficulties in generating and sustaining local demand for vehicles manufactured in Shanghai, may adversely affect business, prospects, operating performance and financial position”;
“The ability to develop, market and sell products and services may be impaired if vehicles or other products sold or installed fail to achieve the desired performance”;
7. “The market competition is fierce, and we may not be able to compete successfully in these industries. It is currently facing competition from new and established domestic and international competitors and is expected to face competition from other companies in the future, including those with new technologies”.
(Original title: Trading Tesla stock, no one wants to hear what analysts say Source: Wind)