Tesla (NASDAQ:TSLA) investors have a smile on their faces Monday morning, following the news that the electric car giant had reached its 5,000/week target for the Model 3 – an important milestone for the company both from an investor sentiment and financial perspective.
Tesla shares reacted to the news, rising nearly 6% to $362.46 in pre-market trading.
Needham’s top analyst Rajvindra Gill commented, “What’s uncertain, however, is can the company sustain this level of production for more than a week and at what cost? We contend that production challenges and battery pack yields continue to weigh on profitability per vehicle and that in order for the company to be profitable yields have to be in the mid-90s. Moreover, the stock price is up 22% in a month (170x P/E) and is discounting ~250k-300k Model 3s delivered and a substantial increase in gross margins. Both areas still have yet to be proven.”
From a valuation standpoint, “Tesla’s market cap is now over $58BN, and the stock currently trades at 170x P/E on 2019 consensus estimates. These estimates already reflect revenue growth of 41% Y/Y, over 250k-300k Model 3s delivered, a 500bps increase in gross margins to 22.4%, and over $2/share of EPS. One has to look out to 2020 consensus EPS estimates of ~$9/share to obtain a more reasonable multiple of P/E 40x. When compared to GM, whose market cap is equal to that of Tesla and sells 10MM vehicles per year, or 10x of Tesla, the disconnect is clear. But for argument’s sake, let’s compare Tesla to high-valued tech stocks (NFLX, AMZN, GOOG, NVDA), Tesla is trading at 2x to that of NFLX and AMZN and 6x of NVDA and 7x of GOOG,” the analyst added.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Rajvindra Gill has a yearly average return of 20.6% and a 66% success rate. Gill is ranked #43 out of 4825 analysts.
The majority of the Street sides with Gill’s cautious take on the electric player, as TipRanks analytics demonstrate TSLA as a Hold. Out of 20 analysts polled in the last 3 months, 7 are bullish on Tesla stock, 8 remain sidelined, while 5 are bearish on the stock. With a downside potential of nearly 11%, the stock’s consensus target price stands at $306.64.