Why Tesla's $1,500 Stock Price Is 'Overheated,' Not Supported By Fundamentals

The spike in Tesla Inc TSLA in recent weeks seems to have been supported by moves in newer or niche technology stocks, the market’s preference for growth stocks and investors buying shares ahead of the company’s potential addition to the S&P500, according to BofA Securities.

The Tesla Analyst: John Murphy maintained an Underperform rating for Tesla, while raising the price target from $500 to $800.

The Tesla Thesis: Although data points and news flow may support Tesla’s high share price for now, valuation “appears overheated,” Murphy said in the note. Tesla's fundamentals may have improved, but aren't stellar.

He explained the company’s volume is below 500,000 units, which is less than 1% of the global market.

Although Tesla has significant room for growth and has executed well in a tough macro environment, its sequential and year-on-year growth in recent quarters has been unimpressive and even negative in some cases, according to the analyst.

Murphy expressed concerns around whether the company had “sustainably turned a corner on profits and cash generation.”

The analyst noted the ramp in production and deliveries and raised the earnings estimates for 2020 from $2.50 to $6.75 per share, for 2021 from $7.00 to $9.50 per share and for 2022 from $11.00 to $12.50 per share.

TSLA Price Action: Shares of Tesla traded around $1,572 at the time of publication. The company reports second-quarter earnings after today's closing bell.

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