Source: PaxForex Premium Analytics Portal, Fundamental Insight
Boasting a remarkable trailing 10-year return of 2,560%, Tesla stands out as an exceptional investment. Despite already surging 98% this year, outperforming the broader market, the electric vehicle (EV) giant's shares currently trade at a substantial 41% below their peak of $410 in November 2021. Optimistic investors eye a target of $500 per share, envisioning a more than 100% gain from the current price.
Given Tesla's historic success, achieving this milestone may not be far-fetched, potentially materializing as early as 2024. To reach the $500 mark by the end of next year, certain factors must come into play.
Investors are keen on witnessing fundamental improvements, as a stock's long-term performance hinges on the underlying business's success. Throughout Tesla's history, robust growth has been the driving force, leading the EV movement globally and propelling sales upward.
However, there's a noticeable slowdown in 2023. In the most recent quarter (Q3 2023 ending Sept. 30), Tesla's revenue saw a modest 9% increase, a significant departure from the robust double-digit growth the company has traditionally delivered.
Elon Musk attributes the challenging macroeconomic environment to the diminished affordability of new cars, particularly with higher interest rates. The prevailing uncertainty surrounding the economy's trajectory is further dampening consumer sentiment, especially concerning significant purchases.
In addition to accelerated revenue growth, for Tesla's stock to sustain its upward momentum, the company must demonstrate progress in terms of profitability. Unfortunately, this aspect has suffered significantly due to fierce competition and continual price reductions aimed at preserving market share.
In the third quarter, Tesla reported an operating margin of 7.6%, a stark decline from the 17.2% recorded in the same period a year ago. Substantial improvements in margins will be crucial throughout 2024 for the stock to perform well. However, given recent trends, maintaining optimism about this outcome is a challenging proposition.
However, robust revenue and earnings growth alone may not propel Tesla's shares toward $500 in the next year. The critical factor missing from the equation is the consideration of the company's valuation.
As of the current moment, Tesla's stock carries a substantial price-to-earnings (P/E) ratio of 78. While some may argue this valuation is justified given the company's market share, disruptive innovation, and industry-leading profitability, it's essential to note that the stock's 98% gain this year is largely attributed to a 105% increase in the P/E multiple during the same period. This signifies a growing investor enthusiasm for the business throughout 2023, influencing the stock price and posing a potential challenge for prospective shareholders seeking significant returns.
In my view, assuming that Tesla's valuation will continue to rise over the next 12 months might be overly optimistic. Market sentiment is unpredictable, and for Tesla, expectations already appear to be exceptionally high. In an environment marked by higher interest rates and elevated inflation, fundamental performance becomes increasingly crucial to shareholders.
Hence, for the stock to reach $500 by the end of next year, the company would need to deliver outstanding financial results, including a doubling of earnings per share between 2023 and 2024. However, given recent trends such as a slowdown in revenue growth and tightening margins, it seems unlikely that this bullish scenario will materialize. Therefore, investors are advised to temper their expectations with regards to Tesla.
As long as the price is above 225.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 238.68
- Take Profit 1: 252.00
- Take Profit 2: 268.00
Alternative scenario:
If the level of 252.00 is broken-down , follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 252.00
- Take Profit 1: 212.00
- Take Profit 2: 195.00
