Shares of Tesla Motors, Inc. (TSLA, Financial) are jumping in Monday´s trading $8.41 or 3.46% to $251.56 per share. I think this is a stock to watch close during the trading day. But why?
Although Morgan Stanley (MS, Financial) maintained its overweight rating, the target price was adjusted to $465 from $280, saying the automaker is in a unique position to dominate the market.
The bank states that the current business plan of the company could result in income three times higher than today in 2029.
The next launch vehicle Model 3 and the possible implementation of the first network of urban mobility systems developed by the company are also factors that the analysts point to the huge improvement of the price target. Tesla is targeted as a strong candidate to lead the emerging segment of vehicles without drivers.
On the other hand, UBS analyst Colin Langan downgraded the rating on Tesla Motors from Neutral to Sell. Additionally, the price target was lowered from $220 to $210. UBS followed Deutsche Bank (DB, Financial) in downgrading the firm, and this happens after the stock reached an all-time high at $292 in September.
Impressive revenue growth
In a previous article we said the company achieved great revenue growth, achieving more than 50% in the first quarter while losses almost tripled year over year. In the second quarter, revenue also increased but in this time by 24.12% while earnings per share dramatically decreased when compared to the same quarter a year ago (-$1.45 vs -$0.50). During the past fiscal year, the firm reported poor results of -$2.36 versus -$0.71 in the previous year. This year, the Street expects an improvement in earnings to -$0.66 versus -$2.36.
Model S and X
Tesla has reduced its production forecast for the year by 10 %. Tesla has forecasted around 55,000 units of Model S and Model X its new supercar in 2015, but now the projection is in the range between 50,000 and 55,000 units to close the year. Apart from China, the company will sell the Model X in Japan in early 2016 and then plans to expand its reach in South Korea, due to the country´s promising outlook.
Relative valuation
In terms of valuation, the stock sells at a forward P/E of 90.91x. To use another metric, its price-to-book ratio of 44.60x indicates a premium versus the industry median of 1.53x while the price-to-sales ratio of 8.53x is above the industry average of 0.71x. These ratios indicate that the stock is relatively overvalued to its peers.
Final comment
We know that the company continues to advance in technology, which allows the firm to reach in the future better performance than its peers. But the main question covers the issues of valuation considering that analysts at Morgan Stanley hike the price target by 66%.
Tesla’s shares rose more than 13% in a year-to-date basis but plummeted more than 3% in the past 12 months.
Hedge fund sentiments are mixed. Ron Baron (Trades, Portfolio) upped his stake 0.67% to 1,222,447 shares while Murray Stahl (Trades, Portfolio) has reduced 15.44% the stake to 3,575 shares. Further, PRIMECAP Management (Trades, Portfolio) has also decreased its position to 1,248,420 shares and more bearish was Louis Moore Bacon (Trades, Portfolio) who sold out the stock in the second quarter of 2015.
Disclosure: Omar Venerio holds no position in any stocks mentioned
