Tesla Motors Inc (NASDAQ:TSLA) shares are back on the rise today, continuing two days of positive gains. Morgan Stanley analysts continue to like the automaker’s stock, saying that because of the negative sentiment after the three Model S fires, shares went from 20% overvalued to nearly 20% undervalued in only two months. Tesla’s stock has recovered a bit since this report was written.

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Tesla remains a cult stock

Analyst Adam Jonas and his team said they have made Tesla Motors Inc (NASDAQ:TSLA) their top pick now because of the recent share price decline. They noted that the recent news about the fires was disruptive to the automaker’s momentum, but they don’t think it will do “material damage” to its business.

They attribute most of the 35% retrenchment in Tesla’s share price to its positioning as a momentum or cult stock which didn’t produce third quarter results which were strong enough to significantly move expectations higher. They attribute less than half the downward move to negative press surrounding the Model S fires.

Can’t analyze the Tesla fire and NHTSA response

Many analysts are making statements about what they expect to hear from the National Highway Traffic Safety Administration after it closes its investigation into the fires. Several have said they don’t think regulators will find a major defect. German regulators have already decided that there are no safety issues with the Model S after their investigation.

Tesla Motors inc (NASDAQ:TSLA) CEO Elon Musk has said he doesn’t expect there to be a recall and has emphasized that fires can happen in any type of vehicle, Jonas reminds investors that they should expect fires from now on because of the law of large numbers. No car company can see 100% fire prevention. He said they’re impressed that there have only been three fires so far since the Model S has been for sale for more than 17 months and there are 22,000 of them on the road with a cumulative 130 million miles driven. He notes that all of the fires were the result of accidents but that Tesla could see significant problems should there ever be a spontaneous fire reported, although he notes that this too isn’t unheard of in high performance cars like the Model S.

Calling the bottom of Tesla

Shares of Tesla Motors Inc (NASDAQ:TSLA) rebounded at around $120 a share and have gained about $20 in price since then. Jonas said they can’t call where the bottom of the stock might be but that they would buy it. They see a buying opportunity for investors who didn’t want to step in when the momentum hit its peak.

Unlike other analysts, they say it is “inappropriate” to compare Tesla to General Motors Company (NYSE:GM) or Ford Motor Company (NYSE:F) in terms of multiples. Both of them have a multiple of eight times, which for Tesla would imply a $25 per share price. They said even under “the most conservative projections for earnings growth,” Tesla would not be comparable to those automakers.

The analysts continue to rate Tesla Motors Inc (NASDAQ:TSLA) as Overweight with a $153 per share price target.

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