While no one labels Tesla (NASDAQ:TSLA) a pure meme stock, it does have some qualities that give it a bit of meme stock status. Namely the fact that, boosted by strong retail support and Elon Musk’s presence, its stock market success has often been driven by qualities that have little to do with fundamentals. Hence, its lofty valuation is far higher than other, more successful auto makers.
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This is a point made by Barlcays analyst Dan Levy when assessing the EV leader’s prospects. “We have at times been willing to be more generous with our target multiple given the belief that TSLA is far more likely to get the ‘more than a carmaker’ treatment by the market, with support from different pockets of the investment community, including retail and momentum investors,” Levy explained.
But there comes a point when that valuation is stretched too far, and for Levy now is that time. Given the fact the stock has soared by 108% year-to-date – the bulk of which has been generated since early May – the analyst recently downgraded Tesla’s rating from Overweight (i.e., Buy) to Equal Weight (i.e. Neutral). At the same time, however, Levy raised his price target from $220 to $260. Nevertheless, that revised figure suggests shares are currently trading for their fair value. (To watch Levy’s track record, click here)
But that doesn’t mean Levy is betting against Tesla. There’s still a “significant long-term opportunity” at play here, and amongst OEMs, Levy considers the company as the “long-term winner in the race to an EV world.”
But the near-term challenges cannot be ignored. Questions on margins and “demand elasticity” remain, and in any case, the recent surge – a ~$300 billion increase in TSLA’s market cap over the last month – was partly down to the decision to open the Supercharger network to other brands but mostly down to the stock catching a ride on the AI buzz. Therefore, the lofty share price has been entirely a function of an “expanding multiple” and has little to do with how Tesla is positioned to benefit from AI, although you could make the case that it has “AI-related operations (FSD, Dojo).”
“Yet in our view,” Levy goes on to sum up, “the TSLA AI opportunity is more long-dated than some of other AI opportunities that have drawn excitement in the market, such as ChatGPT/Bard and the powerful chips needed for this compute.”
Turning now to the rest of the Street, where based on an additional 14 Buys, 11 Holds and 5 Sells, the stock claims a Moderate Buy consensus rating. However, with an average target price of $216.46, it suggests that TSLA shares are currently overvalued by ~16%. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
