Shares of Tesla Inc (NASDAQ: TSLA) have lost more than half of its value since peaking near $970, which prompted BofA Securities to put an end to its bearish stance.
The Tesla Analyst
John Murphy upgraded Tesla's stock from Underperform to Neutral with a price target lifted from $370 to $500.
The Tesla Thesis
Murphy said Tesla's status as a "trailblazer" within the electric vehicle market remains unchanged but investor optimism surrounding its business and financial outlook is "overhyped." Investors are also guilty of overlooking a multiple of potential headwinds, which justifies a "relatively cautious" on the stock.
However, a bearish stance may no longer be justified. The research firm uses a blended average of a series of assumptions pertaining to a Bear/Base/Bull estimates that are based on EV/Sales and EV/EBITDA multiples from a set of comparable companies compared to similar Bear/Base/Bull 2022 earning estimates.
A bullish stance would be difficult to justify for a plethora of reasons, such as:.
- Tesla's volume growth is limited to its capacity expansion and capital commitment.
- The overall EV market is smaller than many believe it to be.
- Current cost of capital is only a temporary advantage.
- Profit and cash flow history is far from consistent.
- After a decade of being in business, the company still needs to seek outside financing.
- Credit investors are "skeptical."
- Investor shifts away from momentum stocks could "be painful."
TSLA Price Action
Shares of Tesla were trading lower by 7.5% Wednesday morning at $398.