Next Stop for Tesla Motors, Inc. Stock: $400?

Here is what you need to know about the latest big analyst upgrade that is sending shares to new highs today.

Sep 2, 2014 at 2:33PM

Tesla Logo

Image source: Tesla Motors.

The key risk for Tesla (NASDAQ:TSLA) stock is demand, Stifel Nicolaus analyst James Albertine said on Monday in a research note (via Street Insider). But even this risk is minimal, he says. "[G]iven (a) competitors' apparent unwillingness to fully invest (resources/managerial autonomy), and (b) TSLA's brand resilience in spite of high-profile accidents/fires/recalls, it seems demand deceleration may be a late decade call at the earliest." Albertine is betting big on the stock, upgrading from a hold to a buy and a price target of $400.

The market was apparently encouraged by Albertine's report. Shares have jumped by 5.5% at the time of this writing, surpassing $280. This is a new all-time high for Tesla stock.

TSLA Chart

TSLA data by YCharts.

Irrational euphoria?
Shares have been on a tear. Twelve-month and year-to-date returns are 65% and 20%, respectively. While the gains are nice, some shareholders may be getting nervous. Has the momentum entered irrational territory?

Four hundred dollars for Tesla stock is quite a price target. Not only is it 40% higher than today's price, but also the target would put Tesla's market capitalization near that of its mass-market U.S. peers Ford and General Motors. At $400, Tesla's market cap would near $50 billion. Ford and General Motors have market capitalizations of $68 billion and $56 billion, respectively.

To put the bullishness of this price target in perspective, consider that in the trailing 12 months, Tesla's revenue was about $2.5 billion while Ford and General Motors recorded $147 billion and $157 billion in revenue, respectively. Obviously, there are some seriously optimistic forward-looking expectations priced into both Tesla's $35 billion market capitalization today and this $400 price target by Stifel Nicolaus.

Indeed, optimistic expectations are essential to Albertine's price target. As the company is a key niche player in the luxury car market today, Albertine is betting on Tesla's growth story to continue solidly in the coming years.

Model S Interior

Model S interior. Image source: Tesla Motors.

"As U.S. vehicle sales settle into a 16.5mm-17mm unit run-rate through mid-decade, we tend to favor OEMs with clearer brand messages, differentiated curb appeal, and opportunities to scale abroad," Albertine said in his research note. Tesla, Albertine asserts, fits the bill.

Albertine isn't the only analyst with huge expectations for Tesla stock.

Morgan Stanley analyst Adam Jonas has a $320 price target on the stock. Like Albertine, Jonas is betting Tesla is going to further explode onto the luxury market -- particularly with the help of its model X. In a note to investors last month, Jonas explained:

We'd be disappointed if the Model X did not sweep every major Car of the Year award on offer by the automotive media. Taking nothing away from the Model S as an exciting, historically important vehicle, Tesla has learned many valuable lessons since the development of its first entirely in-house designed and engineered product. Tesla has far greater financial and technical resources at its disposal to apply to the Model X line that did not exist for the Model S.

Albertine could be right
Of course, the key word here is could. Investors certainly shouldn't count on such a considerable gain in just 12 months. Even more, it's arguably impossible to predict any stock movements in such a short period of time.

But Albertine does capture Tesla's biggest advantage: a razor-sharp and intensely focused value proposition that stands out starkly from that of its peers. Over the long haul, this could help Tesla max out its Fremont, California, production capacity, which Tesla CEO Elon Musk said is around 500,000 vehicles per year.

Model X

Model X prototype (right) next to Model S. Tesla's Model X is expected to begin deliveries to customers in the early spring of 2015. Image source: Tesla Motors.

Hitting 500,000 vehicles per year by 2020 on the strength of continued demand for its Model S and hopefully mind-boggling demand for its Model X and Model 3 is just one of the monstrous expectations priced in to Tesla shares today. Other expectations include timely execution on Tesla's $5 billion Gigafactory and management's ability to keep up Tesla's superior gross profit margins. Today, Tesla's automotive gross profit margin minus zero-emission vehicle credits is 27%. The company anticipates to hit 28% by year-end. 

Investors considering buying Tesla shares today should carefully consider the wildly optimistic future expectations priced into the stock. At the same time, the company's impressive execution continues to give investors a reason to hold on to the stock, despite its soaring value.

Warren Buffett's worst auto nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers