Tesla Inc is going to take over the world, and it’s going to make a lot of people rich in the process. That, at least, is the opinion of Bill Selesky. He studies the firm for Argus research and he put a massive $444 price target on its shares on Tuesday.
Tesla Inc is an amazing company, but its stock price is something separate entirely. Driven by predictions of amazing future growth, and margins, the firm has become one of the most valuable automakers in the world. That’s all while the firm makes barely any cars compared to its competitors. Mr. Selesky needed to make a very strong case for anyone to believe the current valuation just isn’t high enough.
Mr. Selesky’s big Tesla stock story
Selesky’s twelve month price target now sits at $444. That’s 25 percent more than Tesla stock was selling for on Tuesday morning when his report was published. It’s still not the highest target on the sell side of Wall Street, however. That honor belongs to analysts from Berenberg bank, who have had a $464 price target on Tesla stock since early June.
Selesky’s case appears to be based entirely on the Model 3. Argus previously had a Hold on Tesla stock, but upgraded its rating to a Buy in this report. The analyst simply argues that “Our upgrade reflects recent strong orders for the Model 3.”
That line appears related to Elon Musk’s statement that his firm was getting 1,800 new reservations per day.
The question that investors should be asking, of course, is does that number make Tesla worth anything like $444 per share? That price would set the firm’s market cap at more than $75 billion. That’s about 50 percent more than the second most valuable US motor company General Motors Company.
The median price target on Tesla, according to a survey of 16 analysts by the Financial Times, now sits at $337.50. That’s slightly below the $365 shares were set to open at on Wednesday morning.
Tesla Inc bears have their own tall tales
Though the skeptics may be on the right side of Selsky’s argument, there’s plenty of odd stories going around among Tesla stock bears too. People who are skeptical of the firm believe all sorts of out there things, and we’ve covered a lot of them in recent weeks.
Bears believe that Tesla Inc is trying to shift orders away from the Model 3 because it’s a bad car. They think that the company is hiding all sorts of production defects, and that it’s essentially only surviving because of Wall Street hype.
That last charge is the most believable in light of the Argus Capital report. Tesla has a whole lot of promises it needs to live up to if it is ever to have earnings that justify its current valuation.
The “tall tale” bears are a group best left alone, though if you’re following the stock there are credible bears to listen to. Goldman Sachs, the bank that is underwriting the Tesla Inc junk bond sale, reckons shares are worth just $180 each.
The reason behind the lower target is simple and tangible. Analyst David Tamberrino says that sales of current models are no longer rising, while there’s lots of downside from underperformance on Model 3 production.
Bernstein’s Toni Sacconaghi agrees that demand for the Model S and Model X could be plateauing. These are real questions worth asking as Tesla moves forward, and even bulls should be searching for answers.
Tesla shares are up by more than 5 percent over the last month and more than 70 percent since the start of the year. That means that the bears are hurting, no matter who is asking the better questions.