You’re here (NASDAQ: TSLA) took a hit recently. The stock has slipped 16% since early November, even as the S&P 500 increased by more than 2% over the same period.
But despite the stock’s downtrend recently, an analyst believes the electric carmaker’s shares will soar over the next 12 months. The analyst’s updated price target for the stock projects an impressive 55% rise from the stock close on Friday. Based on the number of Tesla shares today, that implies a market cap of $ 1.6 trillion.
Here’s why this analyst is so optimistic.
Last Wednesday, New Street analyst and longtime Tesla bull Pierre Ferragu raised his 12-month price target for Tesla stock from $ 1,290 to $ 1,580.
Ferragu justifies its price target by envisioning record fourth quarter deliveries, impressive production rates at the company’s Shanghai plant, huge revenue growth next year, and more.
Starting with Ferragu’s estimates for Tesla’s fourth-quarter deliveries, he says the company’s electric car deliveries could reach 280,000 to 285,000 in the fourth quarter. The midpoint of that range would imply 56% year-over-year growth and 17% sequential growth, an impressive feat in a tight supply environment. That would bring total shipments for the year to 910,000, about 87% more than last year.
The analyst also believes Tesla’s total revenue next year could approach $ 80 billion. That’s about $ 9 billion more than analysts’ current consensus estimate. Notably, Ferragu believes Tesla is now producing electric vehicles at its plant in China at an annualized rate of more than 700,000, well above what Tesla originally said the plant would do. Adding that production to Tesla’s Fremont plant and the company’s new plants in Texas and Germany will help sales soar next year, the analyst believes.
Valuation may be the biggest risk Tesla investors face
But perhaps the riskiest part of this thesis is Ferragu’s take on the high valuation he thinks Tesla stock will command. Ferragu believes Tesla can trade 50 to 100 times its profits for the foreseeable future. While the electric car maker certainly deserves to trade at a multiple like this today, based on the strong growth prospects of the company, there is still a chance that growth will slow significantly in the future. . If growth slows significantly over the next five years, Tesla’s price-to-earnings ratio could fall below Ferragu’s target range.
Additionally, investors should note that Tesla has a price-to-earnings ratio of over 300 today. So there is already a huge growth in the price of the electric car maker. Of course, analysts agree that earnings are about to skyrocket. On average, analysts estimate Tesla’s earnings per share will grow at an average annualized rate of 73% over the next five years.
So while Tesla stock looks more attractive after its recent sell-off, there are still risks of owning stocks, especially when it comes to the stock’s sky-high valuation. Tesla will have to continue to perform very well in the long term for its stock to outperform at this level.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.