Top rated analyst Ronnie Moas, Founder & Director of Research, Standpoint Research, thinks highly of Tesla Motors Inc (NASDAQ:TSLA) and its founder, Elon Musk, but believes that the stock price has risen too much too quickly. He explains the number and the reasons for his downgrade of the stock below:
TSLA’s sell recommendation
I initiated coverage on Tesla Motors Inc (NASDAQ:TSLA) at Sell on October 4, 2013 @ $180. I upgraded to Hold at $140 a month later on November 7, 2013. I did not follow it much in 2014-2015. The recent run has caught my attention and I am reinstating my Sell recommendation at this time.
Investment strategies used by hedge funds have evolved over the years, although the biggest changes have come in the use of computers to develop portfolios. Rosetta Analytics is a woman-founded and woman-led CTA that's pioneering the use of artificial intelligence and deep reinforcement learning to build and manage alternative investment strategies for institutional and private Read More
The shares have jumped by 70% since February 8 and are once again over-valued. Tesla (TSLA) failed to break $280 in September 2014, reversed and broke below $190 in March 2015. There was a second failed attempt to break $280 in June 2015, the shares reversed and hit $150 in February. The shares are now at $260 and in my opinion a third run at $280 will end in failure; a reversal; and break below $200.
The recent move was in my opinion fueled by short covering and not by investors who see value in this name even though there were good headlines regarding the Model 3 this week.
Tesla’s 2018 revenue estimate
Tesla Motors may hit $15 billion in revenue in 2018, GM is at $150 billion, yet the market is treating the two nearly as equals when we compare the market capitalization. The market is treating TSLA as if it is Apple or Amazon, it is neither.
It will take TSLA 5-10 years for company to grow into this valuation and that will only happen if competitors watch from the sidelines, not going to happen.
The market is treating Tesla as if they are selling 1,000,000 vehicles a year when in fact they are at 100,000.
The market cap at Tesla (TSLA) is now more than Porsche, Mazda, Ferrari and Fiat combined. The market cap of Tesla is now three times that of Peugeot.
If we take an optimistic forecast of $15 billion for 2018 revenue, Tesla is trading at 2.5 times 2018 revenue while most auto manufacturers are at < 0.5. Tesla is not the only auto manufacturer producing electric cars.
There is execution risk and possibly a capital raise required and/or a new manufacturing facility to build. Most auto manufacturers are trading at 6X earnings.
Even if we attach an 18X multiple to a $10 EPS 2020 estimate for Tesla looking out a few years we only come up with a $180 price target.
$10 in EPS would be $1 billion net profit on $20 billion in revenue (5% net profit margin).
Tesla (TSLA) is currently at $3.11 a share for 2017 and that estimate is down from $4.24 just 90 days ago. Tesla (TSLA) lost $2.29 trailing twelve months.