This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines feature a big new buy rating for Tesla Motors Inc (NASDAQ:TSLA), an even bigger sell for Joy Global Inc. (NYSE:JOY), and a slightly higher caloric content for The Cheesecake Factory Incorporated (NASDAQ:CAKE). Let’s dig in.
First up: Tesla
Elon Musk’s popular electric car company won another endorsement Monday when analysts at Global Equities initiated coverage of the stock with an “overweight” (i.e., buy) rating. With the stock already up more than 200% over the past year, Global sees Tesla hitting the gas (figuratively speaking) again this year, and roaring ahead to $150 a share. But is that realistic?
After all, unprofitable based on its trailing-12-months’ results, Tesla Motors Inc (NASDAQ:TSLA) already sells for more than 100 times what it’s expected to earn next year. Global-E’s new price target suggests that a 150 times multiple to those expected earnings is more appropriate. And yet, that’s nearly five times the 33% long-term average annual profits growth rate that analysts project for Tesla stock — a rate it’s hard to ascribe real meaning to, given that Tesla doesn’t currently have any profits to grow.
Free cash flow at the firm… well, there isn’t any of that, either. Rather, Tesla Motors Inc (NASDAQ:TSLA) burned through more than $380 million in negative FCF over the past year, so it’s actually burning cash even faster than it can tally up the burn and report it as GAAP losses.
Long story short, seeing as Tesla Motors Inc (NASDAQ:TSLA) has tripled in price despite losing money over the past year, there’s every reason to suspect Global Equities is right, and the stock will tack on 50% more in stock price gains over the coming year. It doesn’t mean that investors should pay these high prices, however — because eventually, reality is going to catch up, and even this electric car stock will run out of gas.
Relative to Tesla Motors Inc (NASDAQ:TSLA)’s cash-burning ways, you might think Wall Street would love a free-cash-flow-positive company like Joy Global Inc. (NYSE:JOY) a bit more — but you’d be wrong. This morning, analysts at Axiom Capital initiated coverage of the mining equipment maker with a sell rating, and for one simple reason: The worm has turned on the mining supercycle.