Tesla (NASDAQ: TSLA) has been on a wild ride lately, surging more than 25% in the past week alone. Of course, this favourite of the market is no stranger to sudden moves in either direction. So what’s behind the latest burst of enthusiasm for Tesla stock?
What happened?
To understand this recent rally, we need to look at several factors that have converged to drive investor sentiment. The broader market has shown signs of recovery, with growth stocks and tech companies leading the charge in 2024. Tesla, being a prominent player in both categories, has benefited from this overall positive sentiment.
Tesla recently released its Q2 2024 production and delivery numbers, exceeding many analysts’ expectations with a 14% year-on-year increase. Over 444,000 vehicles were delivered in the previous three months, leading many analysts to upgrade the stock. This demonstration of operational efficiency in the face of global supply chain challenges has rekindled investor confidence in the company’s ability to scale.
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The company has also made significant strides in its autonomous driving technology. Recent announcements about improvements in its Full Self-Driving (FSD) beta program have reignited excitement about Tesla’s potential in the AI and autonomous vehicle space.
Often overshadowed by its car business, Tesla’s energy generation and storage segment has shown promising growth. As the world increasingly focuses on renewable energy solutions, this division could become a major revenue driver for the company.
It’s worth noting that Tesla remains one of the most shorted stocks on the market. The rapid price increase in the last few days may have triggered a short squeeze, forcing short sellers to buy shares to cover their positions, further driving up the price.
The fundamentals
Despite this impressive rally, it’s important to note that Tesla’s stock is still down 12.8% over the past year. The company faces significant challenges, including increasing competition in the EV market, regulatory scrutiny, and concerns about valuation.
Looking at the fundamentals, Tesla trades at a price-to-earnings ratio of 57.6 times, significantly higher than traditional automakers but lower than many high-growth tech companies. Analysts forecast earnings growth of 12.61% per year, which could justify the premium valuation, if achieved.
Tesla’s financial health appears strong, with a low debt-to-equity ratio of 7.5% and a healthy profit margin of 14.41%. However, it’s worth being aware of the high level of non-cash earnings, which can skew some of these metrics.
Divisive as ever
As always with Tesla, opinions on its stock remain deeply divided. Some analysts see the company as significantly undervalued, with one discounted cash flow (DCF) calculation indicating a fair value of $355.30, suggesting as much as 34.9% growth from current levels. Many others argue that the stock is overvalued, with a more bearish view putting fair value at $170, suggesting Tesla stock is 36% higher than it should be.
The recent surge in the stock reflects a combination of improved market sentiment, strong operational performance, and excitement about the future. The company has been performing well through a challenging environment, but investors need to consider whether the volatility is worth the rewards. To me, I think the business is one of the most important in the world today, and will continue to hold onto my shares.
