JPMorgan Says Tesla's Valuation Is 'Difficult To Conceive In Any Imagined Scenario'

Shares of Tesla Inc TSLA are up another 867% in the past year, and investors and analysts are as divided as ever about what to make of the red-hot stock. On Wednesday, one high-profile analyst raised his price target for Tesla but still sees significant downside from current levels.

Tesla's stock trades around $635 at publication time.

The Analyst: JPMorgan analyst Ryan Brinkman reiterated his Underperform rating for Tesla and raised his price target from $80 to $90.

The Thesis: Brinkman says his higher price target reflects the positive impact of Tesla’s recent $5 billion at-the-market offering. However, he still struggles to rationalize Tesla’s current share price and said investors shouldn’t increase their Tesla holdings to a level in-line with its weighting in the S&P 500.

“We recommend investors not weight Tesla shares in their portfolio in equal proportion to the S&P because Tesla shares are in our view and by virtually every conventional metric not only overvalued, but dramatically so,” Brinkman wrote in a note.

Tesla is scheduled to become by far the largest stock ever added to the S&P 500 index on Dec. 21.

Click here to check out Benzinga's EV Hub for the latest electric vehicles news.

Brinkman said he is at a loss to explain how Tesla’s stock price has rallied by more than 800% in a year in which Wall Street analysts on average have lowered their EPS estimates for Tesla for 2020, 2021, 2022, 2023 and 2024.

Brinkman said investors’ estimates may be much higher than Wall Street analysts or they may be valuing Tesla today based on what they expect for 2030 and beyond. Still, Tesla’s current market cap is roughly twice the combined size of the two largest auto companies in the world, Volkswagen A G VWAGY and Toyota Motor Corp TM. Those two companies sold a combined 42.1 million vehicles in 2019 compared to the roughly 500,000 vehicles Tesla is hoping to sell in 2020.

Brinkman said it’s “very difficult to conceive in any imagined scenario” that Tesla’s margins and/or sales volumes could ever reach a point to justify its current valuation, much less make the case for long-term upside.

Benzinga’s Take: Stock market bubbles are defined by “irrational exuberance” that can temporarily send stock prices soaring to irrational levels. However, shorting stocks that are caught in a bubble can be extremely dangerous given that irrational exuberance can last for years and the ultimate top is only reached once investor enthusiasm has died down.