Shares of Tesla (TSLA) are starting to really heat up again, up more than 30% in July. Fueling the bounce was Tesla's impressive second-quarter beat and the relief rally experienced by the broader tech sector. Though the 57% earnings pop was impressive, the valuation remains incredibly stretched. Further, investors may underestimate the potential for a steep slide as the world economy tilts into a recession.
Not to take away from the incredible efforts of Elon Musk and company, but 12.1 times sales is just too high a price for an automaker that faces a wave of hungry rivals over the coming decade.
Recent comments from the Federal Reserve following another 75 bps rate hike were soothing to investors owning high-multiple growth stocks. While the meeting could spark a relief rally in the most beaten-down names, Tesla's long-term roadmap could prove very bumpy.
Few firms, especially automakers, are immune from the effects of an economic contraction.
Tesla Stock Clocks in Another Impressive Result
Tesla is making beating on earnings a habit. The latest beat was powered by higher average selling prices and strong vehicle deliveries. Demand for Tesla's hot line of EVs doesn't seem to signal that a recession is on the horizon. Whether Tesla's quarterly strength bodes well for the affluent consumer (who's less rattled by inflation) remains to be seen.
In any case, Tesla looks to have the momentum of a freight train as we head into a period of economic sluggishness. Whether Tesla's sales momentum can carry it through this recession is the million-dollar question.
Tesla remains the king of EVs, putting it on the right side of a powerful secular electrification trend that could span many years to come. After such quarterly strength, it certainly seems that secular tailwinds are stronger than economic headwinds.
A strong brand, an impressive lineup of vehicles, and top-of-the-line technologies have been differentiating factors that could act as some sort of moat around the firm's share of economic profits in the red-hot EV market.
Revenues and margins seem to be on the uptrend. As Tesla's Superchargers continue rolling out across the nation (and then the world), an increasing number of consumers will be willing to go electric with their next vehicle purchase.
Tesla Stock: Worth the Premium Price Tag?
Despite the powerful secular trends, I do not view Tesla's moat as impenetrable. Tesla may be the EV leader today, but it's uncertain whether Elon Musk's empire can retain the throne 10 years from now. As traditional automakers go electric and become more tech-like, Tesla stock may face a considerable valuation multiple contraction.
Alternatively, the electrifying automakers — think Ford (F) — might be rewarded with a substantial multiple expansion. I'd argue that the former case is more probable. The argument for Tesla's premium multiple has been that the firm is a tech company that makes autos rather than an auto company with cool tech.
Sure, Tesla has intriguing technologies running behind the hood, but are such features and functionality replicable by other automakers who are beckoning in top tech talent? Probably. The playing field is bound to even through the decade, and I'd argue that Tesla may not be able to widen the lead over its competitors.
Tech titan Apple (AAPL) has been rumored to be getting into the auto business for quite some time now. Currently, the rumor mill is pointing to an all-electric and autonomous vehicle that may launch in the latter part of this decade.
As one of the most innovative technology companies on the planet, a move into the auto industry could weigh heavily on Tesla's economic moat. Apple has the brand and tech to outdo almost any rival it chooses to fight over market share.
All it took was one simple change in its iOS operating system to wreak havoc on social media companies. Apple's ad business is relatively small today, but the move may lay the foundation for a bigger push in the future, perhaps once the metaverse goes mainstream.
Apple's entry into auto represents a top threat for Tesla, and I don't think the threat is factored in at current valuations. Sure, Apple's many years away from launching a car, but when it does, Tesla's best days may fall into the rear-view mirror.
Wall Street's Take on Tesla
Turning to Wall Street, Tesla has a Moderate Buy consensus rating based on 18 Buys, 6 Holds, and 7 Sells assigned in the past three months. The average Tesla price target of $872.28 implies a modest 3.5% upside potential. Analyst price targets range from a low of $73.00 per share to a high of $1,580 per share. (See TSLA stock forecast on TipRanks)
Takeaway: The Valuation Is Too High Relative to the Risks
Tesla is doing almost everything right these days. As we move into a recession, it may be tougher to continue blowing away the results. Further, competitive threats are poised to increase meaningfully over the next six years. Auto rivals and tech companies could find themselves breathing down Tesla's neck. That doesn't bode well for the rich multiple.
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Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. At the time of publication the writer did not have a position in any of the securities mentioned in this article.
Shares of popular ride-hailing firm Uber (UBER) have been a Wall Street favorite (the average price target implies shares could double) for well over a year now. Despite tumbling further into the abyss, the company has so much potential as the underlying economics of its ride-hailing business look to improve after slogging through two years of seemingly endless headwinds.
Uber seems focused on moving into free cash flow positivity. The alleviation of the current slate of headwinds could help Uber make the jump. Further, Uber is looking to take a step back to become more of a go-to transportation company. In a prior piece, I noted that Uber was well on its way to building out a "super app" capable of covering everything from rides to food and grocery delivery to package and freight delivery.
In the distant future, Uber may be able to leverage its impressive algorithms and network effects to break into higher-margin transportation businesses, including flying taxis and fully-autonomous ride-hailing. Over the nearer term, Uber is likely to pursue M&A opportunities to add to its already impressive network while exploring vertical shifts into parallel markets, including charter buses.
Even with a recession on the horizon, the road ahead seems bumpy but on a steady upward trajectory. As such, I'm inclined to agree with the 27 bullish Wall Street analysts who continue to stand by Uber stock despite its 46% downfall in the past 12 months. I am incredibly bullish on the stock at these depths.
Uber Getting into the Charter Bus MarketUber's recently-announced pivot into charter buses was rather perplexing. However, such moves could transform Uber from a simple ride-hailing app into a transportation-as-a-service super app. The company is rolling out its bus functionality to Dallas and Houston first, with more cities to be included over time.
The bus charter feature is thanks to a partnership with U.S. Coachways and aims to help large groups of people book travel across long distances. Indeed, the feature could evolve to become a step up from Greyhound and other such services.
Though the rollout is in its infancy, the rewards potential seems high, given nearly non-existent risks. If charter buses don't work out, Uber can always pull the plug!
Uber Partners with Hertz to Jolt EV ShiftUber also entered a partnership with Hertz (HTZ), allowing more than 15,000 Uber drivers to rent Tesla (TSLA) vehicles. The deal accelerates Uber's move to electrify its fleet by 2030.
Undoubtedly, the deal seems to work out well for both parties. With a "Comfort Electric" plan to be rolled out in select cities, consumers may be able to pay a bit more to enjoy an emission-free ride. Such a premium will likely help bolster Uber's margins and profitability prospects.
Indeed, the electrification shift isn't just an effort to help save the environment or improve Uber's ESG rating. It may very well leave a long-lasting jolt to margins. Further, a large EV fleet could help Uber separate itself from long-time rival Lyft (LYFT) over the medium term.
Wall Street's Take on UberTurning to Wall Street, Uber has a Strong Buy consensus rating based on 27 Buys and three Holds assigned in the past three months. The average Uber price target of $46.54 implies 99.7% upside potential.
Takeaway - Uber Stock is Too Cheap to Pass UpUber is doing many things right. It's making strategic acquisitions where it makes sense and is teaming up with firms to form mutually-beneficial relationships. The company is well on its way to free cash flow positivity due to such initiatives and the alleviation of inflationary headwinds. At 2.1 times sales, shares of Uber seem too cheap to pass up for those bullish on the firm's ability to widen its moat across various transportation verticals.
Looking ahead, the recession could make the road to free cash flow positivity bumpy. That said, management remains upbeat, as it believes it can tackle a new set of headwinds with grace. Corporate insiders are eating their own cooking, with $5.3 million in shares bought over the last three months.
Make no mistake, ride-hailing and food delivery are discretionary services. Such services tend to see demand destruction during periods of economic contraction. Still, Uber may just be able to hold as there's still a good chance the economy can avoid falling into a recession. In such a scenario, count me unsurprised if Uber stock ends up doubling from current levels.
In any case, Uber is incredibly well-managed and may be on the cusp of a shift into high gear as it takes steps to add to its dominance while improving upon its economics.
Shares of Tesla (TSLA) are starting to really heat up again, now up more than 20% over the past month. Fuelling the bounce was Tesla's impressive second-quarter beat and the relief rally experienced by the broader tech sector. Though the 57% earnings pop was impressive, the valuation remains incredibly stretched. Further, investors may underestimate the potential for a steep slide as the world economy tilts into a recession.
Not to take away from the incredible efforts of Elon Musk and company, but 12.1 times sales is just too high a price for an automaker that faces a wave of hungry rivals over the coming decade. For now, I remain bearish on Tesla stock with shares north of $800 per share.
Recent comments from the Federal Reserve following another 75 bps rate hike were soothing to investors owning high-multiple growth stocks. While the meeting could spark a relief rally in the most beaten-down names, Tesla's long-term roadmap could prove very bumpy.
Few firms, especially automakers, are immune from the effects of an economic contraction.
Tesla Stock Clocks in Another Impressive ResultTesla is making beating on earnings a habit. The latest beat was powered by higher average selling prices and strong vehicle deliveries. Demand for Tesla's hot line of EVs doesn't seem to signal that a recession is on the horizon. Whether Tesla's quarterly strength bodes well for the affluent consumer (who's less rattled by inflation) remains to be seen.
In any case, Tesla looks to have the momentum of a freight train as we head into a period of economic sluggishness. Whether Tesla's sales momentum can carry it through this recession is the million-dollar question.
Tesla remains the king of EVs, putting it on the right side of a powerful secular electrification trend that could span many years to come. After such quarterly strength, it certainly seems that secular tailwinds are stronger than economic headwinds.
A strong brand, an impressive lineup of vehicles, and top-of-the-line technologies have been differentiating factors that could act as some sort of moat around the firm's share of economic profits in the red-hot EV market.
Revenues and margins seem to be on the uptrend. As Tesla's Superchargers continue rolling out across the nation (and then the world), an increasing number of consumers will be willing to go electric with their next vehicle purchase.
Tesla Stock: Worth the Premium Price Tag?Despite the powerful secular trends, I do not view Tesla's moat as impenetrable. Tesla may be the EV leader today, but it's uncertain whether Elon Musk's empire can retain the throne 10 years from now. As traditional automakers go electric and become more tech-like, Tesla stock may face a considerable valuation multiple contraction.
Alternatively, the electrifying automakers — think Ford (F) — might be rewarded with a substantial multiple expansion. I'd argue that the former case is more probable. The argument for Tesla's premium multiple has been that the firm is a tech company that makes autos rather than an auto company with cool tech.
Sure, Tesla has intriguing technologies running behind the hood (forgive the pun), but are such features and functionality replicable by other automakers who are beckoning in top tech talent? Probably. The playing field is bound to even through the decade, and I'd argue that Tesla may not be able to widen the lead over its competitors.
Tech titan Apple (AAPL) has been rumored to be getting into the auto business for quite some time now. Currently, the rumor mill is pointing to an all-electric and autonomous vehicle that may launch in the latter part of this decade.
As one of the most innovative technology companies on the planet, a move into the auto industry could weigh heavily on Tesla's economic moat. Apple has the brand and tech to outdo almost any rival it chooses to fight over market share.
All it took was one simple change in its iOS operating system to wreak havoc on social media companies. Apple's ad business is relatively small today, but the move may lay the foundation for a bigger push in the future, perhaps once the metaverse goes mainstream.
Apple's entry into auto represents a top threat for Tesla, and I don't think the threat is factored in at current valuations. Sure, Apple's many years away from launching a car, but when it does, Tesla's best days may fall into the rear-view mirror (again, sorry for the pun).
Wall Street's Take on TeslaTurning to Wall Street, Tesla has a Moderate Buy consensus rating based on 18 Buys, six Holds, and seven Sells assigned in the past three months. The average Tesla price target of $872.28 implies 3.5% upside potential. Analyst price targets range from a low of $73.00 per share to a high of $1,580 per share.
Takeaway: The Valuation is Too High Relative to the RisksTesla is doing almost everything right these days. As we move into a recession, it may be tougher to continue blowing away the results. Further, competitive threats are poised to increase meaningfully over the next six years. Auto rivals and tech companies could find themselves breathing down Tesla's neck. That doesn't bode well for the rich multiple.