Fans of Tesla (NASDAQ:TSLA) stock have had much to celebrate lately. April 17 marked a record winning streak of 11 consecutive daily gains for the share price. That puts it at an 83% gain for 2020 so far, despite the S&P 500 being slightly down for the year. Perhaps even more unbelievable is the fact that after a record-smashing run, TSLA stock isn’t even at its all-time high. Specifically, it’s still 16.44% short of its record closing price achieved on Feb. 19.
This is all taking place amid the horrifying backdrop of the spread of the novel coronavirus. Tesla investors seem to have an uncanny ability to shake off bad news. That enduring optimism may be commendable, but is it realistic? And just as importantly, is the bull run sustainable?
A Sky-High Price Objective
One way for a stock-market analyst to boost his or her profile is by publishing a highly unusual price target on a popular stock. For instance, occasionally you’ll hear about an analyst assigning a price objective of zero on a troubled company’s stock.
Alternatively, an analyst can go in the opposite direction. That’s the case with ARK Invest CEO Catherine Wood, who recently assigned a price objective to TSLA stock of $6,800 per share by the year 2024.
Mathematically, this presents some interesting considerations. The price of Tesla shares was under $20 at one point in 2010. A decade later, it’s threatening to reclaim its previous peak, which is above $900. The year 2024 isn’t a decade away, but the stock’s prior run-up demonstrates what its price action is capable of.
On the other hand, an efficient market would already have priced in the assumption that electric vehicles will gain traction against traditional combustion-engine vehicles. Perhaps few traders fully anticipated the coming electric-vehicle boom back in 2010, but the investing community is much savvier in 2020.
It’s interesting to note that even after TSLA stock’s breathtaking run-up and despite traders’ shake-off of the coronavirus’ fiscal impact, Wood considers it a “deep value stock today.” That seems to imply that the stock is somehow underpriced. But then, that assumption makes sense if one believes that it’s destined for $6,800.
The Ride-Hailing Thesis
If you’re wondering how Wood can justify such a price target, even after multiple Tesla-factory closures, you’re not alone. Surprisingly, the answer lies not solely within the electric-vehicle, but in the ride-hailing market.
Wood predicts that Tesla will spearhead an “Uber-like” service, first with human drivers and eventually with autonomous vehicles. Wood’s vision for Tesla assumes a series of interconnected outcomes:
“That would be so much more profitable than their base business, and it will enable them to collect so much more data, with people spending a lot more time driving in their cars … That means their artificial intelligence engines are going to become more accurate more quickly, and we think it will accelerate the timeline for autonomous — regulators permitting.”
Her vision also assumes that Tesla Founder Elon Musk is on board with this plan. As of this writing, there’s no publicly available proof that Musk has such a plan. Moreover, even if such a plan had been published, Musk’s mercurial nature suggests that his plans can change frequently and drastically.
As for the admittedly impressive recent ascent in the TSLA stock price, I’ll side with Roth Capital analyst Craig Irwin. Said he, “I just can’t believe this freaking stock. It’s insane … I think this is largely FOMO [fear of missing out].”
The Takeaway on TSLA Stock
With the Tesla bulls on a rampage, it’s going to be difficult to dissuade fans from loading up on the shares. Honestly, there’s not much point in trying.
Does that make me a Tesla “hater”? Not at all, as I believe in the tremendous potential of the global electric-vehicle market. That, however, is quite different from considering TSLA shares a “deep value stock today.” As I see it, the market has yet to fully justify $680, not to mention $6,800.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
