Analyst Raises a New Red Flag on Tesla (TSLA)


Vertical Group analyst Gordon Johnson is out with another bearish note on shares of Tesla (NASDAQ:TSLA), suggesting that the electric car giant could be the subject of an undisclosed investigation by the SEC’s Enforcement Division. Johnson refers to a Probes Reporter report, which actually confirms it.

What are the consequences? Johnson answers:

“In short, based on our discussions with legal experts and security attorneys on this topic, a more conservative viewpoint is that, in general, publically traded companies do not raise capital (i.e., issue securities) while under undisclosed SEC investigation(s). However, we were also told, in defense of those that “claim” TSLA is currently under no restriction to raise capital, that there are enough lawyers out there will offer a more aggressive opinion that TSLA could find legal advice which, for lack of a better conclusion, tells them what they want to hear with respect to this topic. Yet, again, based on the legal advice we’ve been given, if TSLA is in receipt of Wells Notice, we were told, and we quote: “Any responsible lawyer would tell them they need to disclose that before raising money.”

The analyst continued, “Thusly, based on the information below, we believe TSLA needs to answer two key questions, including: (1) Are you currently under an undisclosed SEC investigation, and have you been in the past? and (2) Have you recently received a Wells Notice which you have not disclosed. In short, given our view that TSLA will likely need to raise capital at some point in 2H18, and the potential for this to be restricted should TSLA currently be under SEC investigation, we see this as a very important issue.”

Net net, Johnson reiterates a Sell rating on Tesla shares, with a price target of $99, which reflects a potential downside of 73% from current levels. (To watch Johnson’s track record, click here)

TipRanks indicates Wall Street is evenly split between a battle of bulls vs. bears on Musk’s empire. Out of 24 analysts polled in the last 3 months, 7 are bullish on Tesla stock, 10 remain sidelined, while 7 are bearish on the stock. However, is the stock overvalued or undervalued based on these analysts’ expectations? The 12-month average price target stands at $302.67, suggesting a nearly 15% downside potential from where the stock is currently trading.

 

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