Tesla Stock: Bull Run Or Bull Trap? (NASDAQ:TSLA)
Following a significant decline earlier this year, the shares of Tesla, Inc. (NASDAQ:TSLA) have experienced a rapid upward surge, increasing by over 150%, despite numerous cautionary statements from Elon Musk, the CEO of Tesla, about the condition of the economy. Although the short-term prospects for Tesla's business are uncertain due to the overall economic climate, investors have appeared to become more positive about the company's future, largely influenced by Musk's optimistic long-term projections and exaggerated announcements regarding Tesla's ambitious ventures such as FSD (fully self-driving AI), the Cybertruck, the Optimus Humanoid Bot, Dojo AI chips, and more.
Tesla's stock has been soaring lately, with numerous partnership announcements propelling their North American Charging Standard (NACS) as the top choice for electric vehicle (EV) charging in the United States. Prominent automobile manufacturers like Ford, General Motors, and Volvo are adopting NACS, allowing their customers to access Tesla's supercharger network. Although the supercharger network currently represents a small part of Tesla's overall business, its adoption as the industry standard is a significant triumph for the company. According to Goldman Sachs, opening up this asset to other EV manufacturers could potentially generate over $25 billion per year in revenue for Tesla in the future.
The enthusiasm for Tesla is clearly increasing among investors, and I am thrilled to see Tesla becoming the benchmark for electric vehicle charging. Around the end of 2022 or early 2023, I had a very positive outlook on Tesla when its stock price was in the range of $100-$199. During that time, the market was heavily discounting the company's value, resembling the reckless behavior of a heavily intoxicated sailor.
The worth of Tesla has calmed down considerably in the past year, to the extent that one could reasonably claim that Tesla is now considered a stock with good value. Looking at it from a perspective of the future, Tesla's solid business foundation and reasonable worth make it an attractive investment opportunity at its current levels.
Even though there may be a potential decline in the near future, I believe that Tesla is a top-notch company that I intend to hold onto for the long term. I plan to gradually acquire additional shares over the next few weeks and months.
Main point: I strongly recommend purchasing Tesla stocks at a low price range of around $100. It is advisable to gradually accumulate these stocks over a period of 6-12 months.
Title: Tesla Shares: A Unique Investment Opportunity Unveiled by Insider Sales, Market Demand Worries, and a Frightening Economic Situation In today's piece, we delve into the potential for investing in Tesla stocks, highlighting the presence of an exceptional opportunity that presents itself amidst insider sales, concerns about market demand, and an unsettling economic landscape.
The author's background pertaining to TSLA (SeekingAlpha)
Nevertheless, as you might be aware, I changed my rating on TSLA stock to "Neutral/Hold" following the publication of its Q1 earnings report in April. I revised my position due to increased uncertainties in the overall economy, concerns regarding Tesla's strategy during a recession [which could result in significant reliance on FSD], and a concerning technical situation.
Discover a more comprehensive clarification here:
According to the forward P/E ratio, Tesla is currently valued 15-20% lower than it was in January 2022 during the peak of the liquidity bubble in 2020-21. However, after reaching a valuation comparable to other prominent technology companies in early 2023, Tesla once again holds a significant premium.
Although proponents of Tesla's stock may claim that TSLA should command a higher price due to its rapid growth in the electric vehicle industry and the potential boost in margins from full self-driving technology, skeptics would argue that Tesla operates as a capital-intensive manufacturing business and lags behind other major tech companies in terms of profit margins. From my perspective, both supporters and critics of Tesla have reasonable arguments.
Therefore, should one consider selling Tesla shares at its present valuation, or does it still hold potential for being a lucrative investment in the long run?
In order to address this question, we will be examining the potential gains and losses in the near future and distant future for TSLA. Initially, we will examine predictions and estimations from experts, patterns in the company's operations, visual representations of data, and quantitative evaluations to evaluate the immediate risks and rewards for Tesla. Following that, we will scrutinize TSLA's overall worth to evaluate the potential gains and losses in the long run. So, without any delays, let's begin!
TSLA's Short-Term Forecast: What To Expect?
Tesla is facing some challenges in its quest to promote sustainable energy. The demand for their vehicles is showing signs of weakening due to the Federal Reserve's aggressive monetary policy. In the past few quarters, Tesla's revenue growth has slowed down considerably, and to address this issue, management has been reducing prices to encourage more sales. However, this strategy has had a negative impact on Tesla's profit margins. In the first quarter of 2023, their operating margin dropped to 11.4% and their free cash flow decreased to $440 million. While Tesla's sales are still growing, the high costs associated with achieving this growth have significantly affected their profitability.
Considering the strong financial position of Tesla and the potential for making money from Full Self-Driving (FSD), it is my belief that Musk and his team will probably choose to prioritize maintaining high sales numbers over maximizing profits. However, as time goes on and this approach becomes more established, the success of the investment thesis increasingly depends on FSD achieving complete autonomous capability. Although Tesla may eventually solve the challenges associated with FSD, as an investor with a long-term perspective, I am not comfortable with investing in such high-risk options.
After experiencing a significant increase of 150% in the current year, Tesla appears to have regained its esteemed reputation among both individual and institutional investors. However, in recent weeks, a number of financial experts from Wall Street have revised their outlook for Tesla downwards. The general consensus among analysts regarding Tesla's potential is rather diverse. Out of the 31 analysts who have provided coverage on the stock, 13 consider it a favorable investment, 13 suggest holding onto it, and 5 believe it is best to sell.
Tesla Analyst Prediction (TipRanks)
In spite of a broad projected range of $85-335, the average 12-month price target for Tesla is currently at $218.58. This suggests that the stock may experience a decline of around 15% from its current value.
Currently, Wall Street maintains a neutral position on Tesla, and my colleagues at SA also hold the same opinion. Additionally, TSLA has been given a "HOLD" rating, with an SA Quant score of 3.40/5.
Quant Rating for Tesla (SeekingAlpha)
Despite a significant improvement in Tesla's technical "Momentum (F to A)" grade over the past six months, its "Valuation (D+ to F)", "Growth (A to A-)", and "Revisions (B- to D+)" grades have declined. Although Tesla's "Profitability" grade has remained consistent in this grading system, we are aware that Tesla's profitability has decreased considerably in recent quarters. Therefore, I believe that Tesla's quantitative factor grades are suboptimal and will continue to weaken in the near future. Consequently, when considering the assessment based on quantitative factor grades, Tesla is definitely not recommended for purchase.
In my earlier post in May, I mentioned the following regarding the technical chart of Tesla:
In defiance of Elon Musk's alarming predictions regarding the economy, investors are eagerly putting their money into TSLA stock, anticipating that it will soon revisit the crucial level that defines the head and shoulders pattern. Examining the chart provided, it becomes apparent that Tesla's stock has already encountered two setbacks at this significant technical point.
Should Tesla be unable to surpass this resistant zone, from a technical standpoint, it is possible for the stock to decline towards the middle range of the $100s or potentially even dip into the lower $100s. This would follow the pattern of the reverse gamma squeeze witnessed towards the end of 2022.
From my perspective, if the stock is rejected again at the neckline, it would have a very negative impact. Looking at it from a technical standpoint, if the H&S formation breaks down, it could lead to a downward movement that is equal to the gap between the head and the neckline. For Tesla, that amount is estimated to be between $40-60, depending on how the neckline is drawn (whether it is horizontal or slanted).
I'm not implying that Tesla, Inc. stock will drop significantly, but the technical analysis indicates that this is a potential scenario. If Tesla experiences a decrease in growth during an economic crisis, its stock value may be valued similarly to that of a conventional car manufacturer, which is typically around 5-10 times its earnings. Therefore, this is a plausible situation.
Although I do not believe that Tesla should be assessed in the same way as conventional car manufacturers, I cannot completely dismiss the possibility, as the unpredictable stock market can sometimes behave irrationally. In any case, I would consider a significant decline in Tesla's stock price to be an excellent chance to buy. However, I highly doubt that such a significant drop will occur unless we find ourselves in a severe economic downturn, which is currently not my primary expectation.
In the near future, I believe it is highly possible for the price to decrease to $145 since we haven't yet addressed the market gap at that point. Moreover, if Tesla cannot sustain that level, there might be a chance of revisiting the recent lows, specifically the low $100s.
To put it simply, the technical analysis of Tesla's stock is concerning. If the stock breaks the support level at $215, I would change my opinion. But for now, it might be wise for investors to be patient and wait for a more favorable opportunity to enter the market. If Tesla's stock price drops to around the mid-$100s, I will start buying again using a dollar-cost averaging strategy.
Afterward, Tesla experienced a significant upward movement above the important level of $215, which formed the head and shoulders pattern. It surged to approximately $280 before experiencing a decline and settling around the $250 range where it currently stands.
As we approach it, Tesla's stock is not completely in a situation where it has been excessively bought, with an RSI of 65. As long as TSLA continues to trade above the horizontal [black] and diagonal [blue] lines that form the H&S pattern, I maintain a positive outlook on Tesla's technical chart. In order for the upward momentum to continue, I hope to witness a bullish surge above the recent peak around $280, which coincides with the downward trendline [red dotted line] connecting previous high points.
Right now, I'm uncertain whether Tesla's significant rise is genuine or just a deceptive market trend. Until Tesla surpasses $280 or falls below $215, I will maintain my current long position. Looking at the technical aspect, Tesla is presently in a range where it is not advisable to make any trades, between $215 and $280.
Tesla Stock In 2025: What To Expect
In order to address this inquiry, we will employ the TQI Valuation Model with the subsequent presumptions:
All the other presumptions are fairly easy to understand, but if you have any inquiries, don't hesitate to post them in the comments area.
This is the most recent assessment I have made regarding the value of Tesla.
The TQI Valuation Model, available on the website TQIG.org
After careful analysis over a 5-year time frame and making some bold assumptions, we have calculated that Tesla's fair value estimate is approximately $180. Considering that Tesla is currently priced at $250, it appears to have a potential decline of around 28% towards its fair value.
If we consider a basic scenario where the exit multiple is around 25 times the price-to-free cash flow (P/FCF), Tesla (TSLA) may have a potential valuation of approximately $436 per share in the next five years.
The TQIG.org Valuation Model
Based on the projected price in the future, Tesla's expected return over a 5-year period would be around 12%. However, this falls below my minimum required return for investments, which is 15%. Therefore, I believe that the long-term risk and potential reward for TSLA is not favorable for optimistic investors. The stock has exceeded its fair value and has advanced too rapidly.
If we were to estimate prices by considering Tesla's projected compound annual growth rate (CAGR) over the next 5 years, it seems likely that TSLA's stock price could reach approximately $224.22 per share (equivalent to around $800 billion in market capitalization) by the conclusion of 2025.
Projected Tesla share prices at the end of the following years: 2023 ($179.52), 2024 ($200.63), 2025 ($224.22).
With Tesla's current stock value of $250 per share, it appears that TSLA is not expected to experience much growth in the next few years. Although it is unlikely that we will witness TSLA dropping to the $100 range again (unless there is an economic downturn), the stock will probably maintain its impressive performance from earlier this year for a significant period, potentially lasting a couple of years.
Is TSLA Stock A Sell Or A Good Long-Term Investment?
Based on my examination, it seems that Tesla's stock is overvalued by about 30% compared to its fair value. The potential gains do not outweigh the risks, as the expected compounded annual growth rate (CAGR) for TSLA stock over the next five years is only around 12%. While some people may find this return acceptable, I personally believe there are much better investment opportunities in the current market, especially for those who carefully select stocks. Looking at the quantitative factors, Tesla does not meet the criteria for a buy. Furthermore, despite its strong momentum, Tesla is currently in a zone where trading is not recommended.
Key Economic Indicators (Conference Board)
Given the possibility of an upcoming economic downturn, the immediate future of Tesla's business appears uncertain. For individuals concerned about short-term fluctuations in the market, it would be wise to consider investing in treasury bonds that offer a yield of approximately 5-5.5%. This strategy allows one to wait for a more favorable opportunity to purchase Tesla stocks at a price range around the high-$100s.
After considering the potential risks and rewards in both the short and long term, I have decided to maintain a neutral position on TSLA at its current levels. If the price of Tesla drops to around $180 without a significant decline in the company's financial performance, I would begin to accumulate more TSLA stocks and increase my long-term investment. On the other hand, if Tesla's valuation becomes significantly unrealistic in the next 6-12 months (increasing the downside risk from around 30% to approximately 50-60%, with TSLA reaching $360-400+), I would be willing to sell my long-term investment gradually in order to maximize my profits.
Main Point: I have a neutral stance on Tesla's stock and suggest holding it at a price around $250.
Thank you for taking the time to read this, and best of luck with your investments! Feel free to share any opinions, queries, or worries you may have in the comment box provided below.
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