A Look at the Tesla Phenomenon From a Skeptical Analyst’s View

The week began for Tesla (TSLA) as most weeks have in 2020, by adding more muscle to the share price. The newly 5-1 split stock caught investors’ imagination who pounced on the “cheaper” shares and kept up the monumental rally in the week’s first session. Since Monday, however, the high flying stock has spent a rare couple of days in the red, nearing an 18% correction.

With a new triple digit share price sitting alongside the TSLA ticker, RBC analyst Joseph Spak shared his thoughts on what is undoubtedly one of the stock market’s most controversial names.

The analyst believes there are several angles from which to observe the Tesla phenomenon.

There’s Tesla “the company,” disrupting the auto industry by “pushing vehicles towards electrification,” having established a “compelling and desired brand.” Here there’s no avoiding the Musk Effect. The Tesla story is incomplete without its leader’s influence on consumers’ behavior, of which Spak notes the “perception of Tesla being a superior vehicle could lead to share gains and higher margins.”

Next there is Tesla “the stock” to consider. As Tesla has worked itself up to the position of 9th largest company by market cap, it has become one of the most important stocks in US markets. Spak argues analysts might have “underestimated a critical valuation point: seemingly insatiable investor demand for alternative/clean vehicles.” The result of which, Spak said, “the market has been willing to show more patience and look further out for companies such as Tesla.”

Which brings us to Spak’s final point: “the valuation.” Considering Tesla’s incredible run up – up by 386% year-to-date - Spak views Tesla “as fundamentally overvalued and having to grow into its valuation.”

Despite admitting that “narrative, momentum, and other factors can impact stock price,” the analyst concludes that “ultimately a company’s value is related to the PV of future FCF.”

But what does it all mean for investors? As is so often the case with Tesla these days, it means a target price raise. The figure moves from $170 to $290. Still, there remains 29% of downside from current levels. There is no change to Spak’s rating, however, which stays an Underperform (i.e. Sell). (To watch Spak’s track record, click here)

Overall, Tesla continues to baffle Wall Street. Among Spak’s colleagues, Musk & Co. receive a Hold consensus rating based on 4 Buys, 15 Holds and 11 Sells. The average price target clocks in at $291.04 and suggests a 28.5% decline from current levels. (See Tesla stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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