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How Much Higher Can Tesla Stock Go?

By Investing.com (Haris Anwar/Investing.com)Stock MarketsNov 27, 2020 09:27AM ET
www.investing.com/analysis/how-much-higher-can-tesla-stock-go-200545993
How Much Higher Can Tesla Stock Go?
By Investing.com (Haris Anwar/Investing.com)   |  Nov 27, 2020 09:27AM ET
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The shares of Tesla (NASDAQ:TSLA) are on fire these days. After rallying strongly in a broad-based market recovery since March, they have gained another 40% in just the past 10 days. That upswing is making investors wonder: How much higher can they go?

Before discussing the extent of this tech darling's relentless upward trajectory, it’s important to understand what’s driving the move. Tesla’s latest rally started after S&P Dow Jones Indices announced on Nov. 16 that the electric car-maker will be added to the S&P 500 Index.

After the move, money managers and investors who closely track the S&P will now have to buy the stock in order to accurately mirror the world’s most tracked index. The electric car-maker’s scheduled Dec. 21 inclusion in the index could result in $8 billion of demand from active U.S. large-cap mutual funds, according to analysts at Goldman Sachs. In a Bloomberg report the analyst wrote:

“Of the 189 large-cap core funds in our universe, 157 funds that manage around $500 billion in assets under management did not hold Tesla on Sept. 30.” 

Assuming those funds chose to hold the car-maker at benchmark weight, they would need to buy $8 billion of the stock, or about 2% of Tesla’s market value, the analysts said.

Tesla shares rose another 3.35% on Wednesday to close at $574. After the pandemic, Tesla has been the best-performing large-cap stock in the U.S. this year, soaring about 586%, on increasing optimism that the Palo Alto-based company will dominate the electric-vehicle market.

Tesla 1-Year Chart.
Tesla 1-Year Chart.

The stock spectacular rally helped co-founder Elon Musk add $100.3 billion to his net worth this year and overtake Bill Gates to become the world’s second-richest person. Behind this strength are very strong earnings reports over the past year, showing that Musk is now able to sell cars for a profit, and his technology is far superior when compared with other entrants in the electric vehicle market.

Last month, Tesla reported a fifth consecutive quarter of profits, easily beating analysts’ estimates. That profit streak was coupled with the company hitting production and delivery records and an all-time high free-cash flow. These achievements came at a time when other car-makers’ struggled amid the global downturn triggered by the COVID-19 pandemic.

More Than A Car-Maker

Another attraction of Tesla’s highly volatile stock for long-term investors is the belief of some analysts that the car-maker has more value than the stock’s current valuations show. Morgan Stanley this month changed its bearish stance on Tesla, predicting that the company will also generate money by selling high-margin software and services.

“To only value Tesla on car sales alone ignores the multiple businesses embedded within the company,” analyst Adam Jonas wrote in a note as he upgraded the shares to “overweight” and raised his price target by 50% to $540.

Jonas’s valuation now includes Tesla’s network services, energy storage and insurance businesses. The internet-of-cars opportunity is also real, and a prerequisite to unlock further gains for the stock, the analyst wrote.

According to some of the most bullish analysts, Tesla’s rally has much more room to run. Dan Ives, managing director of equity research and an analyst at Wedbush Securities, is betting that the stock can even reach $1,000 in his “bull case” scenario.

Surging EV demand in China will play a major role in this scenario as the world’s second-largest economy incentivizes companies like Tesla to make new-energy vehicles to account for 15% or more of the market by 2025, according to Ives.

Bottom Line

Tesla is going through an unprecedented boom after the S&P inclusion and the company’s impressive earnings reports in recent quarters. With Tesla's valuation at extreme levels, there is little room for the company to disappoint either on production or demand projections that the market is expecting. Investors should tread with caution.

How Much Higher Can Tesla Stock Go?
 

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How Much Higher Can Tesla Stock Go?

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Comments (16)
N Zink
N Zink Nov 30, 2020 9:01AM ET
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The many large cap S&P 500 portfolio managers will continue to add to their positions. Billions more will climb in. As artificially as it may seem, the price is on an upward trend.
Paul Milla
Paul Milla Nov 30, 2020 3:45AM ET
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hey Haris, u are not saying nothing that we don't know on your article¡!!!I read it cause u say u will do a prediction.please be more specific next time.
Dohuan Elardo
Dohuan Elardo Nov 28, 2020 11:45PM ET
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I don't know this is my fistime
Siva Rajesh
Siva Rajesh Nov 27, 2020 3:52PM ET
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any one send funds for trading
Chris Johnson
Chris Johnson Nov 27, 2020 3:33PM ET
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If revenue from selling green credits to the other car manufacturers is taken out of the equation, Tesla has far from impressive earnings. And the coming years Tesla will not have the EV market by them selves. It will be crowded with impressive EV models from the whole car industry. I doubt Tesla will win that battle.
Tom Krwawecz III
Tom Krwawecz III Nov 27, 2020 3:33PM ET
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flawed argument.
Ed Shin
Ed Shin Nov 27, 2020 3:33PM ET
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common bear argument. fact is that no other auto maker has come close to tesla's advances in battery tech. other manufacturers may come close to what teslas is today, but tesla is investing more into R&D than any other car company. the moat will only grow since they are attracting the best talent in the industry. do your research.
Amit Srivastava
Amit Srivastava Nov 27, 2020 2:20PM ET
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Tesla stock can be treated like a market mood indicator, if there will be optimism in the stock it's time to invest in the market in general.
Kumar Reddy
Kumar Reddy Nov 27, 2020 1:57PM ET
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Tesla is a big bubble stock
James Theme
James Theme Nov 27, 2020 1:57PM ET
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Its overvalued but still i think it will be more succesfull. The man has a trackrecord of amazing us over and over again. And i think he will continue
Joseph Obrzut
jzut Nov 27, 2020 1:51PM ET
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To the moon Alice. To the moon. Anybody here can remember that?
Yelen Shim
Yelen Shim Nov 27, 2020 10:57AM ET
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As long as money managers remain underweight the price will continue to hike. 750 by the end of Q1 2021. Easy !!
Дмитрий Сильвестров
Дмитрий Сильвестров Nov 27, 2020 10:57AM ET
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Definitely! To 300 by the end of 2022:-)
Shi Tha
Shi Tha Nov 27, 2020 10:50AM ET
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Tesla is in bubble
Danny Brasko
ThisIsAmerica Nov 27, 2020 10:45AM ET
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Looks like there is a gamma squeeze un the making, SoftBank or another whale looks responsible for that last leg up.
VIVAN DAVIS
VIVAN DAVIS Nov 27, 2020 10:20AM ET
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nice
Todd Butterworth
Todd Butterworth Nov 27, 2020 10:08AM ET
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So, at current earnings, it will take 1,135 years to justify the stock price. Is the world really convinced they have enough growth potential to close that gap by a millennium or so?
Anton Kazakov
Anton Kazakov Nov 27, 2020 10:08AM ET
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Most investors s doesn't know about it. Like in any pyramid the last one lose. Just collect your extra profit from believers.
Allatra Yiveh
AllatraYiveh Nov 27, 2020 10:06AM ET
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Another type of stock market insanity.
Frank Castle
Frank Castle Nov 27, 2020 10:05AM ET
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$1000
Kumash Kotak
Kumash Kotak Nov 27, 2020 10:01AM ET
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To the moon. Lunatic buying you see.
 
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