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Tesla, Inc. has a high market capitalization and strong consumer demand, but caution is advised due to a drop in profitability metrics and overbought technical indicators, making the stock a 'Hold' according to this analysis dated July 19, 2023.
Fundamental Analysis
Tesla, Inc. (Ticker: TSLA) has a market capitalization of $923.15 billion, placing it amongst the largest companies listed on the NASDAQ exchange. The company has 3.17 billion shares outstanding, providing ample trade liquidity. Tesla's earnings per share (EPS) stand at 3.4. This yields a price-to-earnings (PE) ratio of 85.66, significantly above the market average, which signals high growth expectations from investors.
The company's recent earnings announcement on July 19, 2023, expanded on several important metrics. The second-quarter revenue surged by 47% year-over-year, exceeding Wall Street's expectations of 45% growth. This indicates strong consumer demand for Tesla's offerings. However, some caution arises from the company's strategy of lowering prices to increase sales volumes, which has resulted in a drop in key profitability metrics, such as auto gross margin and operating margin. Specifically, Tesla saw gross margins underperform, which may have been responsible for the negative 0.71% change in the stock on earnings day.
Tesla's discounted cash flow (DCF) is at $297.64, slightly above the last close price of $291.26, hinting at possible undervaluation. Analysts' consensus target stands at $284.05, with a high of $526.67 and a low of $130. This wide discrepancy could reflect differing views about the company's future growth prospects and profitability trends. The median target of $260 suggests analysts see potential for depreciation.
Technical Analysis
Looking at the technical indicators, Tesla's RSI14 is at 77, indicating that the stock may be in an overbought state. This may point to an impending price correction. The fifty-day moving average of the stock is $229.18, and 200-day moving average is $193.72. The stock is currently trading significantly above these averages, underlining its bullish trend.
The 3-month MACD, a trend-following momentum indicator, is at 11.20, further supporting the bullish trend and suggesting continued upward momentum. However, given the high RSI, a pullback or consolidation cannot be ruled out.
Relevant news, especially regarding progress on self-driving software and use of humanoid robots in factories, shows Tesla's continued commitment to innovation and growth. However, over-optimism of targets has been acknowledged, which investors should take into account.
Stock Prediction
For the next trading day, July 20, 2023, we can expect Tesla's stock to trade with a bullish bias given the overall strong technical position. However, given the overbought RSI, investors should brace for a potential pullback. If the market responds positively to Musk's ambitious targets and the earnings revenue beat, the price could test the year's high of $314.67.
For the following week, if positive momentum continues, Tesla could remain in its upward climb. But given the recent margin concerns and likelihood of price correction, a consolidation phase is also possible.
Stock Evaluation
Given the above analysis, Tesla’s stock can be categorized as a 'Hold'. While the company's revenue growth and commitment to innovation are favourable, the concerns around the margin, overbought technical indicators and, slightly high PE ratio suggest a cautious approach. Moreover, market perception could get affected based on Tesla’s execution of its ambitious growth plans. Hence, investors should closely monitor the stock and carefully consider these factors before making any investment decisions.
