Shares of Tesla (NASDAQ:TSLA) have tumbled more than 57% over the past four weeks. The selloff, which comes amid a broader stock market plunge, prompted BofA Securities to upgrade the name to ‘Neutral’ from ‘Underperform’ with a $500 price target.
BofA’s Valuation Call
BofA said it continues to view Tesla as a “trailblazer” in the electric vehicle market and that that view remains unchanged. The firm cautioned however, that while a bearish stance may no longer be justified, investor optimism surrounding the company’s business and financial outlook is “overhyped”. The firm believes that a series of risk factors in Tesla’s business remain underappreciated.
Among the risk BofA identified are profitability and cash flow issues which the firm sees as far from consistent. In its note to investors, BofA also highlighted the fact that after a decade in business, Tesla still needs to seek outside financing. The firm also said that as “creative accounting and presentation helps on a transitory basis,” if investors start moving away from momentum stocks the rotation could “be painful.”
Tesla shares have nosedived from $968 in early February to the current $382 level.
Tesla shares were trading down by 11%, or 48 points, at $382 and change at the time of publication Wednesday. The stock, which currently seems well extended from its last buy zones, has a consensus analyst price target of $503.67.
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