Investors have been reminded of just how much Tesla (TSLA +2.96%) can still be a huge market winner. After tanking 65% in 2022, the stock has skyrocketed 109% this year. The company is benefiting from some strong investor enthusiasm.
As of late December, shares of this business were trading hands at about $257. Can this electric vehicle (EV) stock reach $300 in 2024? Read on to see if that roughly 17% gain is a real possibility.
Don't forget the fundamentals
You wouldn't be able to tell by the stock's recent performance, but Tesla has been facing some serious challenges in 2023. In fact, one could argue that the company's fundamentals are weaker now than they were at the start of the year.
For starters, revenue growth has slowed dramatically. In the third quarter, sales were up by just 9%. That's a long way from the growth of 71% and 51% posted in 2021 and 2022, respectively. Softer demand amid higher interest rates naturally gets in the way of consumers wanting to buy new cars, as their monthly payments increase and things become less affordable.
Making matters worse, competition in the industry is only going to intensify. There are many other car companies out there working on their own EV product line-ups. And this won't make things easy going forward. From a customer's perspective, Tesla isn't the only choice anymore.
Therefore, it's no wonder that the company has implemented numerous price cuts throughout 2023 with the intention of driving demand and maintaining market share. The results of this strategy haven't been encouraging. In the last four quarters, Tesla's gross margin and operating margin have both contracted on a consecutive basis.
It's hard to envision a scenario where the stock does well in 2024 without the business showing signs of improvement. If Tesla is able to register accelerating growth more in line with historical levels, while at the same time stabilizing its margins, then I think shares are likely to do quite well next year.
NASDAQ: TSLA
Key Data Points
Don't bet against it
On the other hand, Tesla may very well continue to face issues in the near term. I don't believe the U.S. is completely out of the woods yet in terms of a recession. Should economic conditions deteriorate, demand for Tesla's expensive vehicles could drop meaningfully. And this would lead to lower earnings. That would certainly make it more difficult for the stock to rise.
However, weak fundamental performance doesn't automatically mean the stock will be a loser. Again, look at what happened this year. The stock has more than doubled even though the business isn't exactly firing on all cylinders.
It's not unreasonable to expect the price-to-earnings ratio, currently at 82, to expand significantly. For reference, since the start of 2022, this valuation metric's peak was 245.
Based on its impressive track record of generating monster returns, a 17% increase in the share price over the next 12 months is a totally plausible outcome, regardless of what happens with Tesla's underlying financial performance. In fact, this hypothetical result would probably be one of its worst annual gains since going public in 2010.
At the end of the day, this is a "story stock." It seems like the narrative is what drives interest in Tesla. It's totally impossible to predict how investor sentiment will shift, but I wouldn't bet against shares hitting the $300 mark by the end of next year.
