Tesla stock soars 20%: Is now a good time to buy?

The electric car maker’s shares are surging higher after taking a beating in recent weeks. Was the stock oversold?
The post Tesla stock soars 20%: Is now a good time to buy? appeared first on The Motley Fool Australia. –

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Tesla stock represented by inside of the Tesla factory at work

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Shares of Tesla Inc (NASDAQ: TSLA) ripped higher on Tuesday. The stock rose as much as 20%, adding more than $100 billion to the electric-car maker’s market capitalisation — or about a Zoom Video Communications‘ worth of market cap. As of this writing, shares are up 19.2%.

Here’s what’s behind the massive move higher, as well as a look at whether this is a good time to buy the stock or not.

Rebounding from a brutal beating

The stock’s big gain on Tuesday follows painful decline in recent weeks. Between mid-February and yesterday, Tesla stock had cratered more than 30%. This brought the stock’s year-to-date return to negative 20%.

Tesla stock’s pullback leading up to Tuesday has been mostly driven by broader-market dynamics. Specifically, growth stocks like Tesla have been getting hammered as the market’s appetite for them took a breather after many tech and growth stocks rose much faster than the overall market in 2020.

But based on how most growth stocks are rebounding on Tuesday, the market generally seems convinced that the recent sell-off went too far.

Is this a buy signal?

It seems a few analysts agree that Tesla shares have become more attractive recently.

On Tuesday, New Street analyst Pierre Ferragu upgraded the stock from a neutral rating to a buy rating. In addition, he gave the stock a $900 12-month price target, noting that the company has clear catalysts in place to grow its deliveries meaningfully over the next two years, with annualized deliveries potentially quadrupling in three years. Ferragu also forecasts Tesla’s annual earnings per share (EPS) could grow to $12 by 2023 — 50% higher than what the consensus analyst estimate currently calls for. 

Wedbush analyst Daniel Ives was similarly upbeat about Tesla stock on Tuesday. The analyst, who has a neutral rating on the stock and a $950 price target, said he believes the company has strong vehicle delivery momentum in China. 

Despite these analysts’ optimistic remarks about the automaker, investors should keep in mind that the stock’s valuation is still on the pricey side. For instance, the company’s market capitalisation is about 20 times its trailing-12-month sales — even after the stock’s recent pullback.

Of course, given the growth trajectory of Tesla’s business, it’s fair to say that shares should trade at a pricey valuation. Management, for instance, believes deliveries will increase from about 500,000 last year to more than 750,000 this year. Moreover, the consensus analyst forecast calls for annual revenue to increase from less than $32 billion in 2020 to $48 billion in 2021 and $63 billion in 2022.

And if electric vehicles continue growing in popularity, it’s possible we will hit a tipping point in which most new vehicle buyers will want electric vehicles. Tesla, of course, would be positioned well to benefit from a vehicle revolution like this if it happens.

There’s no telling if this is the bottom for Tesla stock. I’d argue that it likely isn’t, simply due to the volatile nature of this growth stock. But one thing is clear: The stock is a much better deal than it was when shares reached an all-time high of more than $900 earlier this year.

While Tesla stock certainly isn’t a bargain at this level, this could be a good time for investors willing to hold shares for years to initiate a small position in this growth stock.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla and Zoom Video Communications. The Motley Fool Australia has recommended Zoom Video Communications. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Tesla stock soars 20%: Is now a good time to buy? appeared first on The Motley Fool Australia.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

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