Shares of Tesla (NASDAQ:TSLA) surged higher on Monday, rising more than 13% by the time the market closed. During after-hours trading, shares moved even higher to levels above $1,430. The stock's big boost came after an analyst released a bold 12-month price target for the stock: $1,500. Highlighting how staggering this target is, shares were trading at $230 just one year ago.
Is Tesla stock really a buy at this level? Here's a closer look at why this analyst is so bullish -- and what investors should think about the growth stock today.
Tesla sales are poised to soar
Tesla's trailing-12-month revenue came in at $26 billion -- a small figure for an automotive company with a $250 billion-plus market capitalization. But these sales are growing fast, fueling optimism for the stock. Even more, one analyst thinks there's far more upside ahead for the company's top line. JMP Securities analyst Joseph Osha predicts the automaker's annual revenue will nearly quadruple by 2025, rising to $100 billion.
Tesla's continued rapid growth will merit increased interest from investors and justify a $1,500 price within 12 months, Osha predicts. Of course, following the stock's jump in response to his report, shares are already almost at $1,500. The analyst's price target is up substantially from his previous target of $1,050.
Along with his bullish outlook for Tesla stock, Osha reiterated an outperform rating for the electric-car maker's shares.
Is Tesla stock a buy?
With shares surging so sharply recently, the stock has likely attracted lots of new attention. Is now a good time to buy?
It's true that Tesla's business is growing rapidly. The company's trailing-12-month revenue of $26 billion is up from $21.5 billion in 2018 and $7 billion in 2016. Further, the automaker did recently launch its new Model Y -- a vehicle management expects to be a major catalyst for the company. In fact, CEO Elon Musk has said he expects annual Model Y deliveries to eventually exceed its Model 3 deliveries (and Model 3 deliveries are still growing sharply year over year on a trailing-12-month basis). This catalyst, combined with the company's new factory in China and a new all-electric Tesla truck slated for late 2021, do indeed appear like drivers that could put the company on pace to hit annual sales of $100 billion by 2025.
But investors who buy shares today will need Tesla to not only deliver extraordinary sales growth but to also to demonstrate substantial and sustainable profit. Currently, Tesla is generating about $1 billion in free cash flow annually -- a small sum relative to Tesla's $254 billion market capitalization. Investors who buy shares today, therefore, are speculating that the company can continue growing at wild growth rates for years to come. There's very little margin of safety for investors who buy Tesla stock today, if any at all
There's always a chance that the electric-car maker continues to surprise to the upside, with sales growth exceeding even the most bullish expectations. Investors, however, may want to hope for a big pullback in the stock price before buying into this growth story to help lower the risk of overpaying.