No doubt about it, Tesla Motors Inc (NASDAQ:TSLA) is the market’s hottest stock. Up over 245% this year alone the company has made some investors very rich — but after these gains, the stock and the company look overvalued. At current prices the company trades at 133 times forward earnings and nearly 80 times book value, for a value investors like me, these numbers appear unbelievable.
Many analysts on Wall Street are also worried about the surge in the share price, with the average price target around $85 per share. Bank of America has a price target of $39.
While many investors are willing to pay over $100 for Tesla Motors Inc (NASDAQ:TSLA) shares, the market is not as bullish. Average analyst estimates for 2013 EPS, have been maintained between -$0.01 and -$0.30 for the past six months, despite the company’s bullish outlook on the market. Moreover, earnings estimates for 2014, have been consistently revised downwards during the past six months, from $1.45 at the beginning of the year to $0.78 currently – that puts the company on a 2014 P/E ratio of 150.
At this high earnings multiple, Tesla Motors Inc (NASDAQ:TSLA) needs to achieve a huge number of sales and according to Barron’s:
“Shares of Tesla Motors Inc (NASDAQ:TSLA).…could fall more than 50 percent unless the company can get stronger, cheaper batteries that will allow it to cut the $90,000-plus vehicle sticker price in half. The company’s current Model S is too expensive to attract the hundreds of thousands of buyers each year needed to support the stock price…..the more affordable model Gen III that is expected in three years will have a less expensive battery, but a driving range that is too short to generate the sales that are priced into the stock.”
The market is working against the company
Cheap oil and gas are flooding the US and working against Tesla Motors Inc (NASDAQ:TSLA). High oil prices and prices at the pump drive consumers to electric cars, cheap prices drive them towards the cheaper, and all around more convenient internal combustion engine.
According to industry analysts at Guggenheim Capital Markets, electronic vehicles are not expected to take a market share of more than a few percentage points before 2020. There is also growing competition in the market, albeit not in the same sector and target market that Tesla Motors Inc (NASDAQ:TSLA) is working in.
To combat sluggish sales General Motors Company (NYSE:GM) has resorted to aggressive pricing, announcing incentives of up to $5,000 on the Chevrolet Volt, which sold 7,157 units in May.