At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
Every so often, you see something on Wall Street that makes you go "hmm." Yesterday was one of those days.
Out of nowhere, a quartet of high-powered bankers -- Goldman Sachs
Out of the 13.3 million shares Tesla floated in its public offering in June, Goldman and Morgan Stanley laid claim to equal 35% stakes (at least 4,655,000 shares apiece), while JP Morgan grabbed a 20% share of the IPO, and Deutsche a less-risky 10% piece of the IPO pie. And considering the wildfire success of the offering, chances are good that the bankers anted up even more for an "overallotment" of an additional 1,995,000 shares. With a combined $300 million at risk, it's only logical that these bankers would take a keen interest in the company.
Short-circuiting an electric IPO
Which brings us to what is surprising about yesterday's ratings: Namely, that three of the four bankers initiated coverage of Tesla at a "hold" rating, or its equivalent. Goldman says the shares look "fairly valued" at $19 and change. Deutsche tags Tesla "fully valued," while MS says it's "too early to tell how much of the electric vehicle opportunity Tesla will capture."
And while Deutsche did praise Tesla's "deep technical talent, head-start in EV technology, low development costs, unique product offering, low cost financing, and already ubiquitous brand name," when the rubber hit the road, only JP Morgan actually shifted out of neutral on the stock. In fact, even JP seemed to hedge its bets on Tesla in particular, focusing on the "long-term promise" of electric vehicles and plug-in hybrids, generally, and emphasizing backing from Daimler and Toyota
And so I ask you: Doesn't this seem weird to anyone? Just weeks after taking possession of stock worth (currently) a combined $300 million and committing to hawk it to the public, everybody's gone tentative on Tesla all of a sudden? Or could it be that there's good reason for the analysts' rhetorical reticence?
Call me a skeptic, but I think there may be a reason. Consider: Tesla IPO'ed at a nominal $17 a share back on June 29. But actually, individual investors who bought even mere minutes after the shares began trading were lucky to get them for $17.54. Over the first couple days of trading, Tesla shares ran up as high as $30 apiece. Since the IPO, they've seesawed, drifting down for a while, then rising back up -- but there were only a couple of days on which Tesla's "backers" would have been unable to unload shares at a tidy profit.
In other words, I wouldn't be at all surprised to learn that these four horsemen of the Tesla IPO have little-to-no exposure to the stock, today, at little incentive to pump up the stock price anymore. In which case, it's entirely possible that any underwriting bias they once had has now been disposed of, and it's possible to take their published opinions at face value.
So what is that value? According to Goldman, Morgan Stanley, and Deutsche Bank, the stock's worth anywhere from $17 to $21, plus or minus a coupla bucks from today's price. JP Morgan says the stock's worth considerably more, $25 to be precise.
But the truth is that no one's really knows what Tesla is worth, and no one can know for at least another year or so. The one product Tesla has already produced, the "Roadster" all-electric sportscars, produced about $112 million or in revenues for Tesla last year. (And nearly drove the start-up over the cliff of bankruptcy in the process.) The 16-times sales valuation that results from this revenue number makes the stock look incredibly expensive when contrasted with the sub-1x-sales valuations on Ford
In the meantime, in-between time, Tesla's revenues could slump toward zero ...
According to Tesla, the company needs to sell 20,000 Model S's at about $50,000 a pop in order to start producing profits for investors. A little quick calculator work will tell you that this implies $1 billion in revenues, or about nine times Tesla's most successful year to-date.
Can Tesla do it? I'm of the opinion that if anyone can make a go of this project, it's Elon Musk, founder of PayPal and Tesla's CEO. But even if you believe Tesla will succeed in growing its sales nine times, and evolving into a worth rival to GM, Ford, and the other automotive giants, there's still the little matter of Tesla's carrying a P/S ratio 45 times higher than Ford's, and 30 times Toyota's, to contend with.
I'm not at all sure I like those odds -- and I think now I understand why the bankers are nervous, too.