While many on Wall Street worry that Tesla Motors (TSLA) may be overvalued, one analyst thinks Tesla stock can tack on more than 30% gains over the next year, making its way to $335 per share.
TSLA stock has been one of the hottest names in the market for the last few years; from the beginning of 2013 to last Friday’s close, Tesla stock went on an absolute tear, rallying 670%.
Despite dwarfing the returns of the Nasdaq (+70%) and the S&P 500 (+50%) over that time, analysts at Baird think the run isn’t over.
Here’s why.
A Bullish Baird
Baird’s Ben Kallo and his team see a number of catalysts on the horizon that should help shares of the electric-vehicle maker. Among them:
- Tomorrow’s TSLA shareholder meeting
- Upcoming delivery announcements
- (Most importantly) A series of new model launches and prototype unveilings
While I’d normally dispute the assertion that the mere existence of a shareholder meeting is reason to be bullish, Tesla CEO Elon Musk has a flair for the dramatic, so it’s possible that some glitzy rhetoric could inspire a spree of impulsive buying, sparking some short-term gains.
As for upcoming delivery announcements, those too could be good or bad, and considering the tepid pace of Tesla’s deliveries in 2015, the expectations will be quite high as the stock market looks for TSLA to stay on pace to reach its own ambitious goals.
Tesla aims to deliver 55,000 Model S and Model X cars in 2015. While first-quarter Model S deliveries of 10,045 were in line with estimates, it’s still not clear whether the company has fixed its sales problems in China. TSLA followed up a poor showing in China in 2014 by slashing 30% of its China workforce in March after another slow start this year.
In the U.S., the number of Teslas sold is down 8.6% from last year, according to data accumulated by the Wall Street Journal. Meanwhile, big players including General Motors (GM), Ford (F), Chrysler (FCAU), Toyota (TM) and Honda (HMC) have each seen U.S. sales volume rise year-over-year.
Baird expects second-quarter delivery numbers to come out in early July, so those hoping the TSLA rally isn’t over should cross their fingers. Tesla itself gave broad guidance on what to expect, forecasting deliveries between 10,000 and 11,000 in Q2.
But what’s most likely to determine how TSLA stock finishes 2015 is how Tesla’s upcoming SUV, the Model X, sells. Beyond that, Baird expects the Model 3 prototype in the first six months of 2016 to help send Tesla shares to their $335 price target.
On the Model X, Baird says:
“Sales of the Model X should be supported by growing market for premium luxury SUVs. We estimate the U.S. market for premium luxury SUVs to be ~235k vehicles, based on 2014 premium SUV sales. We believe the large U.S. market will support sales of the Model X as we think the vehicle will have better performance and safety than many competing vehicles, similar to the Model S.”
Consider me skeptical that Tesla, facing lackluster sales at home and abroad, will suddenly start firing on all cylinders and rally to $335 per share, a $42.3 billion valuation. Trading at 9 times sales and 38 times book value, TSLA shares are already priced for perfection.
What happens if Model X reviews aren’t as stellar as Baird expects? What if it’s delayed … again? If the Model 3 is priced too high? If the Gigafactory doesn’t hit early production goals?
TSLA stock isn’t even safe if the company releases a new groundbreaking product — shares inexplicably shed 20% in two days last October following the unveiling of the P85D, which goes from 0 to 60 mph in 3.2 seconds.
There are simply too many things that all have to go right for TSLA to jump another 30% in the next year.
It’s definitely possible, but considering Tesla’s already frothy valuations, counting on a perfect-case scenario to make this growth stock even frothier is a risky proposition.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
