Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Tesla (TSLA) Stock Belongs in the Penalty Box… For Now


There are many reasons to love Tesla’s (TSLA) products, but investors are still waiting for new reasons to love the stock again.

The company recently raised about $2.3 billion through debt and equity, including a $1.6 convertible bond and the sale of $750 million of company stock. While this cash raise will help keep products flowing — ensuring continued customer happiness — Tesla still faces sales and operations challenges. With the company’s latest quarterly release showing a 40% drop in cash, attention is turning (again) to the financial well-being of the electric automaker.

Unfortunately for shareholders, Barclays analyst Brian Johnson thinks the stock will keep sinking. He reiterated an Underweight rating on Tesla stock, with a $192 price target, which implies about 16% downside from current levels. (To watch Johnson’s track record, click here)

Johnson sees extreme polarization in Tesla opinions. The analyst says “hyper bulls…see TSLA dominating multiple large addressable markets,” but the analyst also sees “hyper bears, who see Tesla as one step away from bankruptcy.” While Johnson has been characterized as a bear who sees “bankruptcy concerns [receding],” he also sees growth diminishing.

“Hyper bears who were short TSLA shares on bankruptcy concerns may need to go back to their caves. But at the same time, however, some of the rational bulls may need to reassess the idea that Tesla will become a profitable auto market, as press accounts of the conference call on May 2 around the fund raising indicate that Elon Musk “sold” the deal based on the promise of autonomous robo-taxis by 2020 and appears to be pivoting from improving auto margins and profitability,” Johnson noted.

From a product view, Tesla is a ‘buy.’ The Model X and Y are both rated alongside the best luxury cars in the country, while the Model 3 has promise to be the first affordable and mainstream electric car. The company is also a technology leader, and continues to push self-driving cars, with CEO Elon Musk saying recently he expects autonomous taxis next year.

But the number don’t always back the stock. Some investors argue the company is a ‘sell’ once you dig deeper. For example, just the fact that the company had to raise additional funds has many investors concerned. The company is also struggling to maintain consistent profitability. Consistency may actually be the word of choice for many — while one quarter provides surprisingly strong results, the next two quarters may show surprisingly weak performance.

All in all, Tesla investors are confused on the value proposition of the stock. TipRanks analysis of 26 analyst echoes this confusion, showing a Hold consensus, with eight analysts Buying, seven saying Hold and 11 recommending Sell. However, the price target among these analysts stands at $276.64, which represents a 21% increase from current levels. (See TSLA’s price targets and analyst ratings on TipRanks)

 

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