After falling off in February, Tesla (TSLA) stock has held steady over the past few months. Barring another stock market correction, expect it to remain that way for shares in the electric vehicle (EV) maker.
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Why? Short-sellers, after years of trying to tell investors that the “emperor has no clothes,” have long-since thrown in the towel. This has countered the stock’s waning enthusiasm among retail investors.
Also, the company has yet to really stumble when it comes to quarterly results. It could well deliver yet again with its numbers for the fiscal quarter ending June 30, 2021. In that case, shares may not start climbing back to their $900.40 per share all-time high, but solid results will at least avoid a near-term pullback. (See Tesla Stock Analysis on TipRanks)
However, there is something that could sink Tesla stock from here: a correction among growth stocks. What could bring one about? Worries about a possible rise in interest rates due to high inflation. If this possibility becomes reality, investors will become less willing to value this ultimate “story stock” at its current frothy valuation.
TSLA Stock and its Upcoming Earnings
Investor expectations run high for Tesla’s earnings release on July 26. What will happen if it can deliver better-than-expected operating earnings despite possible cryptocurrency losses, and concerns of its ability to continue boosting its results from the sale of regulatory credits? That scenario would likely be sufficient for shares to continue trading in a sideways direction.
Sideways trading is of course better than trading lower. Still, that could present a disappointment for investors wanting to buy this today, who were hoping the stock would again start trading like it did from mid-2020 through early 2021. However, it does not seem likely another epic run is possible anytime soon.
That is mostly due to the fact that retail investor enthusiasm for EV stocks like this one hasn’t returned to the levels that peaked back in February. Instead, retail investor inflows have shifted to sectors that underperformed throughout the COVID-19 pandemic.
Middling performance may continue in the months ahead. Yet that’s not to say TSLA stock isn’t at risk of a major sell-off. Admittedly, that is not due as much to company-specific factors, as to a possible stock market correction caused by macro factors. Such a correction could hit richly-priced names like this one the hardest.
What Leaves Tesla Shares at Risk of Selling Off?
Stock market analysts have begun to make the case that richly-priced tech growth stocks are at risk of a major correction. The reason? The specter of rising interest rates.
In the current near-zero interest rate environment, investors have had little issue paying up for growth names like TSLA stock. That could change if the Federal Reserve is forced to raise rates, in order to combat high inflation.
These high-fliers may experience a double-digit pullback. How low could it go if this plays out? Sure, continued earnings beats, and factors such as its ramping up of manufacturing capacity, could help minimize the extent to which investors begin discounting the stock.
On the other hand, even if shares go from having a forward price-to-earnings, or P/E, ratio of 142.75x, to a forward P/E ratio of 100x, the downside would be massive. Based on its projected earnings of $4.51 per share, such contraction would mean a move to around $450 per share, around 43% below where the stock trades today.
What Analysts are Saying About TSLA Stock
According to TipRanks, TSLA stock has an analyst consensus rating of Hold. Out of 23 analyst ratings, 10 rate it a Buy, 6 analysts rate it a Hold, and 7 rate it a Sell.
As for price targets, the average Tesla price target is $658.27 per share, implying around 2.31% in upside from today’s prices. Analyst price targets range from a low of $67 per share, to a high of $1,200 per share.
TipRanks’ Smart Score
TSLA Stock has a TipRanks Smart Score of 9 out of 10 (Outperform). Sentiment among TipRanks Investors comes in at Very Negative. Blogger Opinions and News Sentiment are Bullish, and Hedge Fund Activity has Increased in the last fiscal quarter.
Tesla’s Bottom Line: Calm Today, Volatile Tomorrow? It’s Possible
Since the spring, Tesla shares have delivered so-so performance. This could continue, even if its earnings results on July 26 beat estimates. As investor enthusiasm for EV stocks hasn’t gotten back to the level seen earlier this year, expect lukewarm sentiment to continue.
That’s unless growth stocks correct due to increased interest rate worries. Given how richly-priced TSLA stock remains, even a contraction to a forward P/E ratio still in the triple-digits could result in a 43% move lower for shares.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
