Electric vehicle maker Tesla crushed profit estimates Wednesday night. Initially, its shares appeared in off-hours trading, but closed with a 5% drop on Thursday.
Determining Tesla’s stock (ticker: TSLA) can be difficult, but there are a few reasons for its weak performance on Thursday.
Wall Street was impressed with the results, but not overly so. “Good, but not great,” Bernstein analyst Toni Sacconaghi wrote in a research report on Wednesday, adding that “Tesla’s valuation almost implies world domination.”
That is a good line. Tesla is the most valuable automaker in the world now. Sacconaghi’s sentiment echoed across Wall Street, as analysts admitted it was a great quarter, but asked: where is the action going from here?
Tesla shares saw an improvement and a decline on Thursday. New Street Research analyst and Tesla bull Pierre Ferragu downgraded the shares to Hold from Buy. Cowen analyst and Tesla lead Jeffrey Osborne upgraded the shares to Hold from Sell. Finally, they both finished in the same lukewarm qualification.
Offer of shares
A second-quarter gain was essentially the last step in qualifying Tesla shares for inclusion in the S&P 500. That’s good news for bulls as it generates demand for Tesla shares of index funds and others that are closely following the S&P. 500. But Tesla may sell shares to help facilitate a smooth transition to the index. A stock sale offsets any buying pressure, decreases volatility and probably eliminates the possibility of a rise in the stock price.
Quality of earnings
Tesla sells regulatory credits generated by producing more than its fair share of zero-emission vehicles. He has always sold them and will do so for years to come. But it sold a lot in the second quarter. Bears think that means the quarter was of poor quality in terms of earnings.
True or not, the sentiment seems to depend on whether someone is a Tesla bull or bear to begin with.
GLJ analyst Gordon Johnson is a Tesla bear and believes the company advanced sales of emissions credits for future periods to generate the necessary profit for the inclusion of S&P. Furthermore, he thinks that other automakers will need to buy fewer credits in the coming years as other electric vehicle programs increase. He sees the cash supply running out in the future.
Johnson rates Tesla Equivalent to Sell and has a very low price target of $ 87 for the shares. The average analyst price target for Tesla shares is approximately $ 1,165 per share now, according to FactSet.
And stocks are up a lot
It may not need to be said, but Tesla shares have soared over the past year, gaining around 475% and crushing comparable returns for the S&P 500 and the Dow Jones Industrial Average, and its automotive peers.
But the stock has now declined after the last two strong earnings reports. Investors expect a lot from Tesla these days.
In short, great was not good enough on Thursday.
Write to Al Root at [email protected]
.
