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Tesla Stock To $300?

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Tesla stock has surged by almost 2x from lows seen in March, driven by optimism surrounding the company’s bets on artificial intelligence and fully autonomous driving and CEO Elon Musk’s return to the company, following his brief stint in Washington.

However, we think that it might be an appropriate time to divest from TSLA stock. Overall, we hold a negative outlook on the stock, and a target price of $319 seems plausible. We perceive that there is a nearly equal balance of positives and negatives in TSLA stock, considering its general Moderate operating performance and financial state. However, given its Very High valuation, we regard the stock as Unattractive.

Recent trends point to growing challenges. The EV market has cooled, and Chinese automakers are producing increasingly compelling models, making Tesla’s vehicles less desirable—especially in international markets. The much-hyped Cybertruck appears to be a dud, and Google’s Waymo is proving that Tesla isn’t the only serious player in self-driving technology, with its robotaxi service already having a significant head start.

Is owning TSLA stock risky? Certainly, it is. High Quality Portfolio alleviates that risk.

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Let’s discuss the details of each of the evaluated factors but first, for quick background: With $1.5 Tril in market capitalization, Tesla offers electric vehicles and regulatory credits in the automotive sector, and designs, manufactures, markets, sells, and leases energy generation and storage solutions.

[1] Valuation Appears Very High

This table illustrates how TSLA is valued compared to the wider market. For more information see: TSLA Valuation Ratios

[2] Growth Is Unsteady

  • Tesla has experienced an average growth rate of 9.3% in its top line over the past 3 years
  • Its revenues have dropped -1.6% from $97 Bil to $96 Bil in the last 12 months
  • Additionally, its quarterly revenue increased 11.6% to $28 Bil in the most recent quarter from $25 Bil a year ago.

This table emphasizes how TSLA is performing in terms of growth compared to the broader market. For further details see: TSLA Revenue Comparison

[3] Profitability Appears Weak

  • TSLA’s operating income for the last 12 months was $4.9 Bil, reflecting an operating margin of 5.1%
  • With a cash flow margin of 16.5%, it generated approximately $16 Bil in operating cash flow during this span
  • In the same timeframe, TSLA made about $5.1 Bil in net income, indicating a net margin of around 5.3%

This table illustrates TSLA’s profitability in comparison to the wider market. For further information see: TSLA Operating Income Comparison

[4] Financial Stability Appears Very Strong

  • TSLA’s Debt was $14 Bil at the conclusion of the most recent quarter, while its current Market Cap is $1.5 Tril. This indicates a Debt-to-Equity Ratio of 0.9%
  • TSLA has Cash (including cash equivalents) totaling $42 Bil from $134 Bil in total Assets. This results in a Cash-to-Assets Ratio of 31.1%

[5] Downturn Resilience Is Poor

TSLA has performed worse than the S&P 500 index in various economic downturns. We evaluate this based on both (a) the extent of the stock’s decline and (b) the speed of its recovery.

2022 Inflation Shock

  • TSLA stock dropped 73.6% from a peak of $409.97 on 4 November 2021 to $108.10 on 3 January 2023, compared to a peak-to-trough decline of 25.4% for the S&P 500.
  • Nonetheless, the stock completely recovered to its pre-Crisis peak by 11 December 2024
  • Since then, the stock rose to a maximum of $479.86 on 17 December 2024 and is currently trading at $452.42

2020 Covid Pandemic

  • TSLA stock dropped 60.6% from a peak of $61.16 on 19 February 2020 to $24.08 on 18 March 2020, compared to a peak-to-trough drop of 33.9% for the S&P 500.
  • However, the stock completely recovered to its pre-Crisis peak by 8 June 2020

However, the risk is not confined to significant market crashes. Stocks can decline even in favorable market conditions; consider occurrences like earnings reports, business updates, or outlook changes. Read TSLA Dip Buyer Analyses to examine how the stock has bounced back from sharp declines in the past.

The Trefis High Quality (HQ) Portfolio, featuring a selection of 30 stocks, has consistently outperformed its benchmark that encompasses all three indices – S&P 500, Russell, and S&P midcap. Why is this the case? As a collective, HQ Portfolio stocks have delivered superior returns with reduced risk compared to the benchmark index, providing a steadier performance, as demonstrated in HQ Portfolio performance metrics.