Shares of electric-car maker Tesla (NASDAQ:TSLA) took a hit on Wednesday, falling 7% by the time the market closed.
The stock's decline was likely driven primarily by a bearish day in the broader market, particularly for growth stocks like Tesla. But one analyst's bearish comments about the stock's valuation could have played a role in the decline as well.
The S&P 500 and the Nasdaq Composite fell 0.8% and 1.9% on Wednesday, respectively. The market seems to be taking a breather after hitting record highs on Tuesday. Many tech stocks and growth stocks were hit exceptionally hard on Wednesday, helping explain why some Tesla investors may have been spooked.
Meanwhile, J.P. Morgan analyst Ryan Brinkman raised his 12-month price target for Tesla from $80 to $90 and reiterated an underweight rating. This target, of course, is significantly below the stock's $604 price tag today. Tesla stock is "dramatically" overvalued "by virtually every conventional metric," Brinkman said in a note to investors on Wednesday.
Brinkman is right that a case can be made that shares are overvalued. But some other analysts remain bullish, betting on mass adoption of electric vehicles in the coming years, rapid growth in higher-margin sales, and Tesla's nascent energy business.
Whatever the case, investors should be cautious about investing in Tesla after the stock's nearly 800% gain over the past 12 months. Those interested in the stock may want to hope for a better price -- one that leaves more room for error when it comes to the automaker's future business execution.