Analyst Acknowledges 'Rude Awakening' On Tesla, But Remains Cautious

Shares of Tesla Inc TSLA have tripled in value since last June and are up 35% since the start of 2019. Despite a "rude awakening" as a result of Tesla's stock strength, investors are still overestimating the company's outlook and there are several reasons investors need to remain "cautious," according to BofA Securities.

Tesla reports earnings after Wednesday's close.

The Analyst

John Murphy maintains an Underperform rating on Tesla's stock with a price target lifted from $240 to $350.

The Thesis

A few reasons investors need to hold a cautious stance on Tesla's stock include:

The electric vehicle market's total addressable market is "smaller than appreciated" and certainly not unlimited.
The cost of capital is "negligible" but only for the time being.
Profit and cash flow are neither "good or consistent."
The company is "clearly" depending on raising capital, even after operating for more than 10 years.
Credit investors have reason to be "skeptical" but have "joined the bandwagon" due to equity cushions.
Management's use of creative accounting and presentations "helps on a transitory basis."
A large mass rotation towards value plays could "be painful" for Tesla's stock.

Despite a handful of reasons to be concerned, a price target revision is necessary and reflects a "more optimistic bull case scenario and valuation."