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Tesla: Oppenheimer, Tocqueville Think Its Overvalued

Maitali Ramkumar - Author

Nov. 12 2019, Published 7:32 a.m. ET

Is Tesla (TSLA) stock getting overvalued? This is one of the crucial questions that investors face in the current scenario. The stock has been on an upward trajectory since its third-quarter results. On Monday, Tesla rose 2.4% due to the news that Jefferies raised its target price from $300 to $400.

Tesla stock has risen about 43% sequentially due to surprise third-quarter profits and the expected revelation of an electric truck. Investors think that the stock is getting expensive.

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Oppenheimer: Is Tesla stock overvalued?

In an interview with CNBC, Oppenheimer’s Ari Wald acknowledged that Tesla stock is facing a favorable macro environment with the S&P 500 Index (SPY) touching record highs. SPY has risen by 3.9% sequentially and 25.1% year-to-date. Wald, a managing director and senior analyst, provides technical analysis for Oppenheimer.

However, Wald thinks that Tesla stock could peak out at $385 as it did 2016–2017 when it faced a similar pattern. Currently, the stock trades at $345.

He thinks that the current run-up in the stock and its erratic behavior show that the stock can’t be a tactical investment. Tesla stock might be entering an overvalued zone.

Petrides: Tesla stock is expensive

John Petrides, the portfolio manager at Tocqueville Asset Management, said, “Tesla still remains way too expensive for my blood.” Petrides points to the cash flow growth in the past couple of quarters and relates it to last year’s trend. He says that he has seen a similar trend before.

Even in the previous year, the company showed cash flow growth in two quarters. However, things went haywire in the next quarter, which impacted the stock. In the current senario, Petrides thinks that Tesla should raise funds through equity for its growth activities.

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An equity offering could be a cheaper form of financing for the company. Tesla is expanding rapidly and needs funds to support its expansion plans. In the first nine months of 2019, Tesla had net cash inflows of $1.518 billion from convertibles and other debt. Also, the company had cash inflows of $848 million from the equity offering.

Tesla’s growth activities

The funding is an integral part of Tesla’s plan to create local manufacturing footprints across the globe. In China, the company built Gigafactory 3 in ten months. Notably, Gigafactory cost less than its counterpart in the US.

Tesla thinks that the production of Model 3 in China will help its demand in the region. Local manufacturing reduces the vehicle’s cost, which allows it to be priced competitively compared to its peers. China is a crucial market for the company. Overall, China is the largest market for mid-sized premium sedans.

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The company also plans to produce Model Y in China. Tesla intends to build on the expertise developed from the construction of Gigafactory 3. Besides, the company is in the final stages of site selection for its projects in Europe. Tesla plans to produce Model 3 and Model Y in Europe. The company has seen higher revenues from China and Europe in the third quarter. Read Tesla Stock: Is a Revenue Mix Shift Good News? to learn more.

Auto stocks in the quarter

Tesla stock is likely getting overvalued due to its current surge. Other auto stocks also seem to be trending higher in the quarter. So far in the quarter, Fiat Chrysler (FCAU) stock has increased about 24% due to its better-than-expected results and the merger announcement. Fiat plans to merge with the owner of Peugeot, PSA Group. The merger will create one of the largest automobile companies globally.

Ferrari (RACE) also trended 7% higher sequentially due to excellent results and higher guidance for the year. General Motors (GM) stock rose 3% sequentially on an earning beat. However, Ford (F) stock has fallen 1% in the quarter due to a downward revision in its earnings guidance.


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