The Tesla (NASDAQ:TSLA) share price often defies logic, rising when you’d expect it to drop and vice versa. But given that it’s up more than 230% in five years, it’s clearly done more increasing than falling overall.
Personally, I would have expected the S&P 500 stock to be struggling this year. After all, Tesla has been losing market share in China and Europe, and recently its US market share dropped below 40% for the first time since 2017, according to Reuters.
In Q2, revenue and deliveries declined 12% and 13%, respectively. That was the company’s steepest revenue decline in over a decade. And net income slumped 16% to $1.2bn.
Looking ahead, CEO Elon Musk has warned about “a few rough quarters” as EV policies change in the US. Normally, when a firm signals that weak quarters (in the plural) are expected, many investors hit the sell button.
Again though, that hasn’t happened, and the stock actually rose around 33% in September.
Very divided views
Just like Musk’s outspoken politics, Tesla itself is the ultimate Marmite stock. And this is reflected in mixed ratings from Wall Street analysts.
Of the 50 teams following Tesla, 23 rate it a Buy, while 16 have it down as a Hold. But 11 analyst teams — more than 20% — rate the shares as the equivalent of a Sell.
The Marmite analogy is most apparent when it comes to the 12-month price target. At the lowest we have $115 from JPMorgan, while one broker (Dan Ives of Wedbush) has an uber-bullish target of $600.
If one of them is right, this would result in either a crash of 75% or 31% gain from the current share price of $459. Both could end up well wide of the mark, of course.
The average share price target is currently $347, which is actually 24.5% lower than the present level. This suggests that a £5,000 investment made today would end up losing a quarter of its value, turning five grand into less than four.
Expensive or undervalued?
Given the difficulties the company is facing, the stock’s valuation doesn’t really make sense. It’s trading at a steep 175 times forward earnings, while the five-year price-to-earnings-to-growth (PEG) ratio is approaching eight, according to Yahoo Finance.
This informs the lowly $115 price target. JPMorgan thinks there’s just too much valuation risk, especially as the full-year outlook might not be met.
As for Dan Ives, who is a diehard Tesla bull, he reckons the stock is an “undervalued AI play“. This is because the firm may introduce its self-driving robotaxis to many US cities inside the next 12 months. He sees the regulatory backdrop as favourable, allowing a faster rollout.
Meanwhile, Optimus humanoid robots are due to be deployed more widely next year. Investors are betting that robotaxis and humanoids will drive significant earnings growth in future — far more than any bog-standard carmaker could ever earn.
Should I buy Tesla stock?
It’s hard not to be intrigued about a possible future filled with millions of advanced AI-based robots. With a hefty $1.45trn market cap today though, my fear is that much — if not all — of this potential is already priced into Tesla stock.
As such, I continue to see better opportunities elsewhere for my own portfolio.
