Analysts Think Tesla’s Stock Is Too Expensive

Analysts Think Tesla’s Stock Is Too Expensive

about 4 years ago2 mins

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As Tesla’s shares continue to soar, analysts keep raising their estimates of what the stock is worth – even though they argue it’s actually overvalued by over 33%.

What does this mean?

Investment bank UBS more than doubled its Tesla price target on Thursday – from $160 to $410. Such a big jump would normally be a strong signal to buy, but not in this case: the new target is still a lot lower than Tesla’s current price of $560, which means UBS still thinks investors should sell the stock.

The bank likes Tesla, and reckons it can increase last year’s 367,500 sales to 800,000 by 2022. But according to its analysis, the current stock price assumes the automaker will sell 1.4 million cars in 2025 – and that, UBS says, is just too optimistic.

Analysts’ price targets vs Tesla’s stock price.
Analysts’ price targets vs Tesla’s stock price.

Many analysts, not just UBS’s, have raised their price targets this month, after strong fourth-quarter deliveries and a new Chinese factory fuelled a surge in Tesla’s stock price. But even so, the average price target among analysts is just $384...

Why should I care?

Analysts aren’t the only ones who think Tesla’s stock is overvalued: the stock is one of the world’s most shorted. In other words, investors are betting it’ll fall in value. But shorting a stock requires investors to borrow the stock, sell it, and buy it back later – hopefully at a lower price – to return to the original lender. That means those bets could, ironically, give the stock a boost.

As Tesla’s stock rises, so do short-sellers’ losses: they’ve already lost an estimated $3.3 billion this month. If they can’t handle those shortfalls, they’ll have to exit the bet by buying back the stock. That could lead to a wave of buying, which would drive the stock price higher and force more short-sellers to buy. It’s a vicious cycle. Unless your name is Elon Musk, who gets a $370 million payday if Tesla’s market cap stays above $100 billion…

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