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Tesla Turns to S&P After Rapid Rally, Some Investors Want More

NEW YORK (Reuters) – Is now too late to join the Tesla party?

FILE PHOTO: The logo of automaker Tesla is seen at a branch amid the coronavirus disease (COVID-19) outbreak in Bern, Switzerland, Dec. 10, 2020. Reuters/Arnd Wiegmann

Shares of the electric car maker have risen nearly 700% in the last year, a meteoric rise that has punished short sellers and made it the most valuable automaker in the world.

The company, which officially joined the S&P 500 on Monday, is expected to generate unprecedented activity by Friday’s close, as index-tracking funds increase their holdings of the stock so their portfolios correctly reflect the index.

Still, Wall Street is divided on whether Tesla’s heady gains are numbered.

Overall, Wall Street analysts have long been skeptical of Tesla. The average price target of 35 analysts tracked by Refinitiv is $396.30 a share, a 36 percent drop from the current price. However, ranging from a high of $774 per share by Elazar Advisors to a low of $40 per share by GLJ Research shows just how divided Wall Street is on the stock.

Tesla closed at $655.90 on Thursday.

Some long-term investors said they still expect Tesla to post above-average gains due to increasing adoption in the global electric vehicle market and its solar business. Meanwhile, investors remain confident that Tesla CEO and billionaire Elon Musk will continue to push the company’s disruptive technology ahead of rivals.

Gary Robinson, portfolio manager at Baillie Gifford US Equity Growth, said: “It has become clear to us this year that the company is ahead of its competitors not only in terms of technological capabilities, but also in terms of affordable range and performance mix. Competitors.” Funds, who own the stock.

Tesla could prove to have a more profitable business model than rivals and accelerate the growth of its solar business, allowing its stock price to more than double in the next five years, he said.

Overall, Tesla trades at 175 times projected earnings per share over the next 12 months, while BMW is valued at 14 times projected earnings per share and Toyota Motor Corp. The value is 16 times the expected earnings.

Meanwhile, Tesla is expected to earn $2.29 a share on revenue of $30.8 billion for the fiscal year, while GM is expected to earn $4.67 a share on revenue of $120.7 billion, according to Refinitiv data.

A report from Goldman Sachs said its inclusion in the S&P index would push the S&P 500’s forward price-to-earnings ratio up another 0.4 times, approaching its all-time high valuation.

The firm noted that “Tesla trades at an exceptionally high nominal price-to-earnings ratio for any period in history, for any industry, for any company,” and maintained an $80 price target on the stock.

Despite the stock’s high valuation, some long-term investors say they’re sticking with the company. “When you’re investing in the right team, short-term valuations tend to lose their significance over time,” said Anthony Zackery, a portfolio manager at Zevenbergen Capital Investments.

Tesla bears remain plentiful, focusing on Musk’s record of missing production targets and corporate governance risks after he was forced to step down as chairman in 2018 to address fraud allegations.

Tesla remains the most money shorted against the company in the U.S. market despite inflicting $33.8 billion in mark-to-market losses to short sellers since the start of the year, according to S3 Partners.

“At some point, you’re going to be short the stock because it’s probably the last big Tesla move for a while,” said Charles Lemonides, a portfolio manager at ValueWorks LLC. There are no jobs at this company.

“Shorting Tesla has been a very dangerous thing so far, but it could reach the point of complete overextension,” he added.

Reporting by David Randall; Additional reporting by Noel Randewich Editing by Megan Davies, Ira Iosebashvili and Richard Pullin

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