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Shares of Tesla (TSLA 6.12%) fell on Monday, declining as much as 5.4% at the day’s lows, before recovering to a 3.8% decline as of 2:40 p.m. ET.
Yes, the broader Nasdaq Composite (^IXIC 2.37%) was down as well today, as traders appeared to rotate out of large-cap tech stocks that have already gained an impressive amount this year.
Tesla is certainly in that camp, having roughly doubled in 2023, even after today’s decline. However, its decline on Monday was exacerbated by a downgrade from a major Wall Street firm.
On Sunday night, Goldman Sachs analyst Mark Delaney released a note to his clients downgrading his rating on Tesla from buy to neutral. Although curiously, Delaney also raised his price target from $185 to $248.
If that seems like the analyst is adjusting his target after a huge rally to reflect the current share price, that appears to be the case. Delaney didn’t so much change his rather bullish outlook on Tesla as a business, but rather adjusted his rating based on the fact that shares appear to be pricing in a lot of good news already. Delaney said:
While the primary reason for the change in our view is that we think the market is now giving the stock more credit for its longer-term opportunities, we are also cognizant of the difficult pricing environment for new vehicles that we think will continue to weigh on Tesla’s automotive [adjusted] gross margin this year…
Goldman’s downgrade follows last week’s downgrade of shares by Barclays, in which analyst Dan Levy also said he still believes in Tesla as a business over the long term, but also believes shares have run too far and too fast.
That enthusiasm has been based on the potential of artificial intelligence to enhance Tesla’s full self-driving capabilities, as well as last fall’s decision to open up of Tesla’s Supercharger network to third parties, which could lead to incremental profits as EV adoption ramps up in the U.S. However, those are both longer-term stories unlikely to affect this year’s earnings much.
Image source: Getty Images.
Tesla remains a highly volatile and contentious stock, prone to big jumps higher and crashes lower. This is, of course, what inevitably happens with a popular growth tech stock, which is often priced extremely expensively, but which also offers potential for disruption and innovation.
Currently, Tesla trades at a lofty 73 times earnings and 50 times 2024 estimates, while most auto stocks trade at single-digit multiples.
However, if you are invested in Tesla, you likely are in the stock for the long-term innovation story. Given that this analyst call appears to be driven by short-term price fluctuations and the outlook over the next 12 months, it probably shouldn’t affect your take on the stock, whether you’re a bear or a bull.
Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Tesla. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.
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