What happened

Tesla (TSLA -4.02%) stock broke a seven-day downtrend on Wednesday, surging as much as 3.6% through 10:20 a.m. EST.

Believe it or not, you can probably thank R.W. Baird for that.

So what

Shares of Tesla had been slumping through the second half of December on continued reports of weak demand and supply chain disruption in China, which resulted in at least an eight-day shutdown of production at the Shanghai factory, the company's largest. (Tesla itself said the shutdown was just for "annual maintenance work.") This morning, however, in a curious backhanded compliment, investment bank R.W. Baird cut its price target on Tesla stock by 20% (to $252 a share) while at the same time insisting Tesla stock is its "best idea for 2023."

Production might be slowing at Tesla in China, and demand for the company's electric cars could indeed be softening, admits Baird. But Tesla still has "many demand levers to pull" to rev up demand again, argues the analyst. The company could emphasize vehicle leasing, for example, or offer additional free supercharging of newly purchased cars to spur more sales and keep Tesla growing faster than the average car company in 2023.

Now what

And growth is key to Tesla stock. As I pointed out yesterday, the recent stunning sell-off in Tesla shares has reduced the cost of the stock to levels not seen in the past two and a half years. At 32.5 times earnings, Tesla's stock is valued quite cheaply -- if, that is, Tesla achieves analysts' targeted earnings growth rates of 35% over the next five years.

Assuming that happens, Tesla stock is selling at a PEG ratio of just 0.9 -- a full 10% discount from the fair value -- today. If, on the other hand, Tesla does not grow at 35% -- say it grows only 25% annually over the next five years, which, according to analysts, is about as fast as rival Ford Motor Company will grow -- that would imply that Tesla stock is not, in fact, undervalued at today's prices and that it remains 30% overvalued today.

That's the risk Tesla investors need to keep in mind, because that's the thing that could cause Tesla stock to keep going down.