Tesla Inc (NASDAQ:TSLA) stock has been in overdrive. Part of this has been due to the general bullishness across the markets, which seem to hit new highs every day. But the TSLA stock performance has been more than this. Since early December, the shares have gained a sizzling 47%. By comparison, during the same period Facebook Inc (NASDAQ:FB) is up about 13%, Netflix, Inc. (NASDAQ:NFLX) has gained about 22% and Amazon.com, Inc. (NASDAQ:AMZN) is up 14%.
But going forward, it’s probably reasonable for investors to, well, get more cautious on TSLA stock, which reports earnings Wednesday. Consider that yesterday UBS Group AG (USA) (NYSE:UBS) analyst Colin Langan published a grim report on the company.
One of his big worries is the recent purchase of SolarCity, which has been a persistent money-loser. The company may also face more pressures as the Donald Trump Administration takes steps to pull back support for the clean-energy industry.
According to Langan: “We continue to believe SolarCity is an unneeded distraction during a very challenging launch period.” Actually, his price target on TSLA stock is at $160.
Oh, and Wall Street has taken this to heart. On news of the report, Tesla stock fell nearly 4%. In other words, the shares appear to be particularly vulnerable to any negative news.
Yet Langan is certainly not the only Wall Street analyst who is bearish. Just look Cowen’s Jeffrey Osborne. On Wednesday, he reaffirmed his lowly price target on TSLA stock at $155. Again, he is skeptical about the SolarCity deal.
Despite all this, Tesla CEO Elon Musk has certainly found ways to gin things up. For example, he has indicated that the company is planning to enter India and the United Arab Emirates. No doubt, these markets have large populations of wealthy people that would love to buy Tesla cars. But then again, it will still take time to get traction. Let’s face it, there will need to be investments in core infrastructure, like charging stations.
Bottom Line On TSLA Stock
Yet lack of demand has never really been the issue with Tesla. Rather, it has been the complexities of production. For example, in early January, TSLA disclosed that it had missed fourth-quarter and full-year estimates on deliveries.
What’s more, there may be some technical factors that could weigh on the company’s shares. Given the high valuation — at over 7 times sales — it is reasonable that the firm will do an equity raise, which would dilute TSLA stock. The fact is that the company has substantial ongoing capital needs.
And yes, the rally in the overall equities markets will certainly not last forever. Actually, the next few months could be a real test. That is, what will tax reform look like? And will the looser approach on regulations have much of an immediate impact? For the most part, Wall Street has been factoring in much of the potential good news — and then some.
So with the markets getting frothy, it seems likely there will be a correction at some point. In fact, the Federal Reserve may soon become a factor. There may be more urgency to focus on ways to quell the enthusiasm in the markets.
If there is a drop in the markets, the impact could easily be disproportionate for TSLA. This has certainly been the case during the past few years. It’s the kind of thing that happens with a fairly risky stock.
And finally, Tesla will report its fourth quarter results next Wednesday. Given the surge in the stock already and the various risks like the SolarCity deal, it’s probably best to wait on the sidelines for now.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own free iOS app to estimate your tax refund, which is at PathwayTax.com. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
