Yet again, Tesla (NASDAQ: TSLA) shares shocked naysayers in 2023, rocketing over 101% throughout the year. This was against the backdrop of a tricky market, too, with many other equities struggling to see double-digit gains.
Tesla has had a volatile history. The stock trades with a beta of 2.32, meaning that typically when the market rises or falls by 1%, its shares rise or fall by over double that. CEO Elon Musk’s notorious leadership style serves to enhance this volatility.
For the first three weeks of 2024, the stock has fallen almost 15% at the time of writing. If I did want to buy, this drop could provide a nice entry point. And if I were to buy, could the stock surpass its all-time high in 2024? Let’s investigate.
The value question
Tesla shares trade on a price-to-earnings (P/E) ratio of 69. This means that investors currently think the stock is worth 69 times its earnings. For context, most investors consider good value stocks to trade on P/E ratios of under 10.
The NASDAQ, the exchange that Tesla trades on, has an average P/E ratio of 28, predominantly comprising of high-growth stocks. With the company’s shares trading at over double this, it doesn’t fill me with confidence.
Tesla stock currently trades at $211. It has an average target price of $248. This represents roughly an 18% increase versus the current share price. With institutional analysts seemingly backing the stock to rise, it could signify further growth in 2024.
That being said, some investors remain sceptical, with HSBC downgrading its target price to $146 in October. The primary reason for this downgrade was worry that Tesla’s tangential ventures may not yield positive cash flow until the close of this decade.
Perhaps more worryingly, the bank identified Elon Musk as a singular point of risk for the company, characterising him as a “single-person risk” factor.
Market-leading systems
Despite its punchy valuation, it’s hard not to marvel at Tesla’s industry-leading practices. Its unique vertical integration sets it apart from competitors by allowing the company to control a significant portion of its supply chain.
With in-house manufacturing of key components like batteries and drivetrains, Tesla has been able to keep costs low, while consistently maintaining stringent quality control. This approach enhances its competitiveness, something vital in the fiercely competitive landscape of electric vehicle manufacturing.
The verdict
Overall, I don’t think Tesla will surpass its all-time in 2024. Currently sitting at $211, the stock is a significant distance from the all-time high of $407. Looking at the current valuation, as well as institutional ratings, reinforces this for me. That being said, the stock does have a tendency to rise pretty randomly so I may be wrong. However, it is still too risky for me and therefore I won’t be buying today.
