After Tesla (NASDAQ:TSLA) released its second-quarter results, which disappointed Wall Street, Swiss bank UBS reiterated its “sell” rating and $197 price target on Tesla stock. UBS’ price target is about 10% below the stock’s current level.
TSLA stock is down about 11% this morning.
Why UBS Is So Bearish on Tesla Stock
According to UBS analyst Joseph Spak, Tesla’s valuation is very high because investors believe that its initiatives in autonomy and artificial intelligence (AI) will bear great fruit in the future. Among the firm’s undertakings in those areas are its robo-taxi and humanoid robot projects.
But because those initiatives won’t generate profits for a long time, investors tend to focus on the company’s dominant auto business when the firm reports its financial results, Spak explained. (Tesla intends to reveal its robotaxi project in October, while it expects to start using its humanoid robot internally in 2025).
Moreover, all but $74 of Tesla’s current share price reflects investors’ anticipation of the firm’s upcoming projects. However, it’s unclear when the robotaxi project will launch, and Tesla noted that its timing is uncertain. Finally, the shares could drop if the robotaxi project is delayed further, and even if the undertaking succeeds, the shares could sink due to a “sell the news phenomenon,” Spak believes.
The Valuation of TSLA Stock Is Elevated
Even if Tesla’s upcoming, more affordable EV and increased adoption of its current Advanced Driver Assistance System (ADAS) boost its annual earnings per share by $1, the shares will still be changing hands at a very high price-to=earnings ratio of over 75 times, Spak noted.
Before today’s trading, Tesla stock had a huge forward P/E ratio of 99 times.
Heading into today, Tesla stock had climbed 25% in the previous month and 52% in the preceding three months.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
