Tesla Motors Inc Stock: Long-Term Investors Should Avoid It

Tesla stockBlomst / Pixabay

Tesla Motors Inc (NASDAQ:TSLA) shares plunged to as low as $178 after the company reported its first quarter results on May 7. However, the stock has recovered to break above the critical level of $200, closing Thursday at $204.88. Despite these fluctuations, the stock is still up 34.5% this year so far. Now that the stock is approaching analysts’ average price target of $214, many are pondering whether the stock will go up or down.

Tesla stock may touch the key resistance level of $230

Prime Executions chief equity strategist Steven Pytlar says Tesla Motors Inc (NASDAQ:TSLA) stock will trade sideways for a while. He says technicals of the stock show a few positive signs. Even though it dipped on earnings, the stock easily rallied back. It indicates that there isn’t much selling pressure left in Tesla stock. Pytlar says the stock even has the potential to move up to the key resistance level of $230 in coming days.

Tesla

However, many longer-term indicators have started moving more toward neutral levels, says Steven Pytlar. That usually suggests that a long-term consolidation phase is going to play out. Chad Morganlander, portfolio manager at Washington Crossing Advisors, says Tesla Motors Inc (NASDAQ:TSLA)’s fundamentals suggest that cautious investors should avoid the stock. Of course, it’s a great company that makes innovative and beautiful cars, but its valuation is too high, says Morganlander.

Tesla is no software company

Tesla Motors Inc (NASDAQ:TSLA) shares are currently trading at 62.5x its estimates 2015 earnings. Chad Morganlander says Tesla is an automobile company, not a software firm where operating margins could be 30%-40%. He estimates that the electric vehicle maker will have an operating margin of no more than 15% when it hits maturity. Those who want to trade Tesla stock in the short-term can take a position, but long-term investors should avoid Tesla. Morganlander says aggressive traders can play around with the stock. But long-term investors need to be much more conservative from the fundamental and valuation perspective.

Tesla Motors Inc (NASDAQ:TSLA) shares were down 0.42% to $204.02 in pre-market trading Friday.

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About the Author

Vikas Shukla
Vikas Shukla has a strong interest in business, finance, and technology. He writes regularly on these topics. - He can be contacted by email at vshukla@valuewalk.com or on Twitter @VikShukla10

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