Tesla Valuation Still Frothy Despite 50% Plunge Since Highs, Bernstein Says

By Yasin Ebrahim 

Investing.com – Tesla (NASDAQ:) has plunged about 50% since accelerating to record highs just a month ago, but one analyst on Wall Street says the dip is not worth buying as the automaker continues to sport a frothy valuation.

“At current levels, Tesla stock remains high enough that it takes very aggressive assumptions on its future auto business to justify its valuation on a (discounted cash flow) basis,” Bernstein analyst Toni Sacconaghi said.

Sacconaghi stopped short of calling time on Tesla’s bull run despite highlighting the near-term risk to automaker following the coronavirus-led impact to auto sales.

“We see more near-term risk to estimates at Tesla than most other IT hardware or growth tech names, but believe shorting Tesla on this basis is more a market/Covid-19 call than a stock call,” he added.

The bearish call on Tesla arrived on a day when its share price plunged 18% after RBC Capital cut his price target on the company and flagged concerns about deliveries falling short of estimates.

RBC cuts its price target on Tesla to $380 from $530, on fears that constrained demand in the second quarter, may force the company to cut production. The bank expects Tesla to deliver 364,600 vehicles for 2020 and 572,100 for 2021, down from his prior estimates of 524,200 and 618,000, respectively.

“Ultimately, we see 1Q20 challenges given typical (end-of-quarter) push, very low 2Q20 demand given a weak auto market and lower mid-term growth as the consumer reels and Tesla’s products are luxury,” RBC warned. “We believe this experience could dent the multiple investors will be willing to pay for the Tesla story.”

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