Tesla (TSLA) shares are on the rise again, adding another 15% so far this month. The green candles have been a familiar sight in 2020, with investors’ appetite for the EV pioneer seemingly unquenchable. Overall, the stock is up by a massive 676% year-to-date.
Taking advantage of the latest surge, the company disclosed on Tuesday that it had entered an equity distribution agreement to sell $5 billion’s worth of shares. The shares will periodically be sold ATM (at the market).
While Tesla’s massive share gains are becoming almost par for the course, Musk and Co.’s capital raises are also a regular occurrence. Tesla often sold stock in its early cash strapped years and has continued to so even after fleshing out the balance sheet. In fact, this is the third multibillion-dollar stock sale this year.
Wedbush analyst Daniel Ives says that following the recent “parabolic rally,” it is “the smart move at the right time.”
Referencing the previous raises, the analyst highlights how they “took the doomsday scenario off the table that Tesla was facing at the time.”
Ives claims the raises were also essential in helping to construct the “linchpin Giga 3 factory in China,” and prepare the groundwork for the “sustained profitability” which led to the S&P 500 inclusion.
Ives believes the latest effort to shore up the “treasure chest” should pay also off.
“Now in a clear position of strength and out of the red ink with major factory build outs on the horizon (Austin and Berlin), Musk and his red cape are raising enough capital to get the balance sheet and capital structure to further firm up its growing cash position and slowly get out of its debt situation, which throws the lingering bear thesis for Tesla out the window for now,” the 5-star analyst said.
Despite applauding the move, Ives keeps a Neutral (i.e. Hold) rating on TSLA shares, with a “base” price target of $560. This figure implies ~14% downside from current levels. (To watch Ives’ track record, click here)
Overall, Tesla might be a firm favorite amongst investors, but the Street has habitually considered it overvalued; The current readout is no different. With the average price target set to $403.24, the forecast is for a 38% decline in the share price over the next 12 months. The stock has a Hold consensus rating, based on 10 Buys, 8 Holds and 7 Sells. (See Tesla stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.