Shares of EV powerhouse Tesla (TSLA) have been among the most resilient growth stocks, even amid the tech-focused sell-off. The stock sunk nearly 40% from peak to trough in a move that seemed to look like the beginning of the end.
Many short-sellers who’ve targeted the name were pressured out of their positions over the years. This latest resilient rally from ~$766 per share to around $1,100 per share seems to be another reason why Tesla stock is one of the head-scratchers that is difficult to short.
In due time, the shorts will make money, but if there were a time for the EV pioneer to crumble, it would have been the first quarter of 2022.
It seems like Tesla is poised to make new highs, even as interest rates rise while the odds of economic recession take it up a notch. Last week’s yield curve inversion is nothing short of dire, but Tesla stock continues to reward those who stand by it, even in the face of profound macro pressures.
Could it be that the secular growth drivers in the EV space are so powerful that Tesla is still worth a premium in the face of tech’s painful valuation reset?
It’s hard to tell. It’s a leader now, but there is competition on the horizon. Still, if there’s a man who knows how to roll with the punches, it’s Elon Musk, the richest man in the world, who continues to prove his doubters wrong.
Although the stock has been a relative pillar of stability in 2022 thus far, I’m not ready to change my stance on the stock. I remain bearish on the name as the valuation continues to be uncomfortable.
Powerful Innovators
Innovation isn’t as appealing as it used to be, especially far-fetched innovation like firms aiming to dominate the metaverse. With the booming EV space continuing to gain traction, big economic profits aren’t too far away from electrifying automakers like Tesla.
While rivals could put Tesla to the test over the coming years, it’s hard to ignore Tesla’s staying power. The brand built by Elon Musk has been synonymous with EVs.
Given the recent strength in TSLA stock, it seems like investors are betting that Tesla will continue holding its own with competitors looming from all corners.
How Premium is the Tesla Brand?
Tesla boasts a premium price, and for good reason; it’s a tech company that makes vehicles. The company already has its sights on the next frontier in automotive space, autonomous-driving technology, and next-generation batteries that could bring in market share across categories beyond the auto market. Tesla continues to impress in its many meetings hosted by Elon Musk.
If the company can continue staying a step or two ahead of the competition, like Apple (AAPL) has in the smartphone market, the hefty multiple may be justified on shares of Tesla.
Like Apple, Tesla has a massive following that probably will not be quick to shift gears over to a rival once more options in the EV market become available with time. There’s no doubting the fans, but I view the current 23 times sales multiple as incredibly lofty.
Tailwinds May Not Be Enough
The auto space has faced booms and busts before. If a recession is on the horizon, Tesla could quickly shift into reverse as it backtracks from one of its most excellent quarters to date.
The first quarter was nothing short of stellar for Tesla, with deliveries surging to a record 310,000 in spite of quarterly headwinds. The company is on the right side of a secular trend, and it’s executing.
That said, a recession could cause the long-term secular trend to be overpowered by a shorter-term cyclical downturn.
Add recent China shutdown uncertainties into the equation, and the road ahead definitely doesn’t look so smooth.
Wall Street’s Take
According to TipRanks’ rating consensus, TSLA stock comes in as a Moderate Buy. Out of 25 analyst ratings, there are 15 Buy recommendations, four Hold recommendations, and six Sell recommendations.
The average Tesla price target is $1,015.26, implying 7.4% downside potential. Analyst price targets range from a low of $67 per share to a high of $1,580 per share.
Bottom Line on Tesla Stock
Yes, the secular tailwinds are still at play. That doesn’t mean autos will not be secular come the next recession. Of course, it remains a mystery as to how Tesla will fare as the Fed looks to temper inflation without causing substantial economic damage.
In any case, Tesla’s ready to continue innovating through good times or bad. For now, that’s been enough to keep the stock propelled amid one of the worst speculative tech sell-offs since the dot-com bust of 2000.
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