Tesla share price: Is the automaker undervalued at $567?

Tesla closed out Monday’s session at $567 per share. At those price levels, the automaker boasts a market capitalisation of $538 billion.

At that valuation, Tesla is larger than Volkswagen Group ($90.02 billion), Daimler AG ($72.43 billion), Toyota Motor Corporation ($186.58 billion), and General Motors ($62.75 billion) – combined.

Tesla’s valuation is indeed high, with the stock trading on an earnings multiple of 1,124x. Despite that, investors continue to push the stock higher: TSLA has risen 40% in the last month and 747% in the last year. Investors, it seems, simply cannot get enough of TSLA.

To be sure, Tesla’s operational performance has improved dramatically in recent quarters. In Q3 the company's automotive revenues rose 47% to $7.6 billion, total gross profits climbed 63%, net income (GAAP) gained 218%, while total vehicle production hit 145,036, up 76%.

While that is undeniably strong growth, one is left wondering if this operational performance merits the stratospheric share price run up. Wall Street analysts appear sceptical.

Tesla share price: What does Wall Street think?

Of the 33 analysts covering Tesla, the stock has 11 Sell ratings, 11 Hold ratings, 10 Buy ratings and 1 Strong Buy rating. Despite that mixed set of ratings, the average analyst price target stands at $277.78 per share. This suggests that the sell side, in aggregate, believe that Tesla is overvalued at current price levels.

A $277.78 price target, after all, implies downside of around 51%.

The short of it

Tesla and Chief Executive Elon Musk has long relished defying expectations and outsmarting Wall Street and other investment veterans.

In fact, Tesla may be known as much for its sleek cars as for a trail of short sellers that have been crushed betting against Musk and his grand vision for the automaker.

The opening section from this February MarketWatch article highlights a general mood that often hovers around Tesla, with the article opening with the declaration that:

‘Andrew Left is breaking a promise, and very few people would blame him.

Left, the legendary short seller behind Citron Research, is back at shorting Tesla […] stock, which on Tuesday rose nearly 14% to close at a record $887.06, its sixth straight session of gains.’

It should be noted that the above references a pre-split price. At Tesla’s current after-hours price of $592 per share, the stock trades closer to $3,000 per share, in pre-split terms. Or over 200% higher than when that article was published.

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