New Street Research analyst Pierre Ferragu has been one of the more bullish analysts on Tesla (TSLA 1.16%) for a while now. Given the stock's approximately 800% run-up over the past 12 months, investors who have followed his recommendations to buy the electric-car maker's shares are likely very happy with their results.

But the Tesla bull is changing his tone on the growth stock. Though he ultimately remains bullish on Tesla over the long haul, he told investors this week that the valuation is becoming stretched. To this end, he pulled his buy rating on the stock, downgrading it to hold.

Here's a closer look at what's behind Ferragu's moderated view for the stock.

A red Model 3

The Tesla Model 3. Image source: Tesla.

Time to take some profits?

Over the long haul, Ferragu is still betting the company will continue growing rapidly and ultimately reward investors. His optimism is based on an expectation for electric vehicles (EVs) to eventually become as cheap to manufacture as gas cars are, leading to consumers adopting EVs en masse. 

But with the stock soaring about 40% since the analyst set a $578 12-month price target in October (a Street high at the time), Ferragu is advising investors to exercise more caution or even go as far as to take some profits.

Highlighting how much Tesla's valuation has changed over the past year, the stock has gone from trading at 2.5 times sales one year ago to 22 times sales today. Even during the last month alone, this key valuation multiple has expanded by nearly 50%.

Ferragu reiterated that he still expects shares to hit $1,200 by 2025. In addition, he said that since the long-term bull case is intact, shares should be bought on any weakness.

A sobering view

While this analyst's view could initially be off-putting to some Tesla bulls, they might want to take some time to mull over his commentary. Ferragu's advice attempts to consider both the long-term potential for Tesla stock and the heightened risk of holding on to every share of the company following the wild rise this year.

For those who own shares, it doesn't hurt to take some profits. Sure, Tesla is executing well. Vehicle sales are surging and the company is expanding rapidly by opening new factories and constructing new production lines. In addition, Tesla's vehicle software has potential to bolster the automaker's profit margin over the long haul. But with shares soaring as sharply as they have, investors should recognize that the stock may have priced in most of this optimistic view.

On the other hand, given Tesla's strong execution recently, it may not make sense to sell an entire position in the company. It's always possible that the company's execution surprises to the upside.

And for those interested in buying the stock, there's no reason to rush into a position. It never hurts to wait to see if the stock takes a hit, presenting a better buying opportunity.