What happened
Shares of Tesla (TSLA -1.11%) skidded off the road Wednesday morning, falling as much as 6.1%. As of 2:07 p.m. ET, the stock was still down 4.6%.
The catalyst that sent the electric vehicle (EV) maker lower was a slightly bearish call by a Wall Street analyst, but the devil's in the details.
So what
Barclays (BCS 0.58%) analyst and Wall Street veteran Dan Levy downgraded Tesla stock to equal weight (hold) from overweight (buy) while simultaneously raising his price target to $260 from its previous level at $220, according to The Fly. It's worth noting that the increased price target was the analyst playing catch-up, as the stock closed at $274.45 on Tuesday.
The analyst cited Tesla's recent blistering stock price rally, saying the gains have been "too sharp relative to challenging near-term fundamentals." He cites the uncertainty regarding Tesla's margins and fluctuations in demand as potentially impacting the company's near-term performance.
Levy was clear that while he's "bullish" on Tesla's long-term potential, he has questions regarding recent vehicle discounting and how this will weigh on margins. He further suggests that the company's strategies and initiatives will "take time to show through."
The analyst predicts Tesla will deliver roughly 455,000 cars in the current quarter but expects inventory levels to climb, given the uncertain macroeconomic conditions.
Now what
It's important to put the analyst's comments into the context of Tesla's recent stock price move. As of Tuesday's market close, Tesla stock had soared 123% so far this year and 154% since its trough in early January. Driving the rally was news that numerous automakers -- including Ford, General Motors, and most recently Rivian -- would join Tesla's Supercharger Network and adopt the company's North American Charging Standard (NACS) connector.
That blistering run, however, has had a commensurate impact on its valuation, with a forward price-to-earnings ratio of 74, while the stock is selling for more than 6 times next year's sales.
To be clear, Tesla still has a long road ahead, but the stock might have gotten a little ahead of itself. Current shareholders should stay the course, but price-sensitive investors might want to wait for a better entry point or risk being plagued by near-term volatility.
