Tesla’s Rebound: The Importance of Long-Term Play

Tesla is back in the green today, up over 5%, after recording a loss of 20% recently. The stock plummeted mainly because of its failure to enlist on S&P 500 Index. Even though Tesla shorts cheered the news of the stock decline, the company’s performance is based on solid long-term catalysts and analysts believe that Tesla investors should not worry about the fickle and short-term stock performance.

Broader Direction of Tesla

The Domini Impact Equity Fund on Sept. 10 said that Tesla has a strong ecosystem like Apple, which has a product, related services and recurring revenue. Tesla, according to The Domini Impact Equity Fund, has an ecosystem of “next-generation” fuel-saving, connected devices that would make our lives easier and cleaner. The fund’s founder and chair Amy Domini also said that she would only consider dumping Tesla if the company plans to change its direction from these long-term goals.

Enough Cash Due to Stock’s Performance?

Tesla recently announced a stock split which will make it easier for average investors to acquire a stake in the company. In August, Bank of America analyst John Murphy increased his price target for Tesla to $550 from $350 and reiterated a neutral rating. The analyst said that Tesla’s biggest long-term challenge is to generate cash to fund its massive expansion efforts across the world. But he thinks Tesla’s soaring stock price will make it easier for the company to resolve this challenge.

Murphy also said that Tesla’s upward stock movement shows that there is “no need for internal funding.”

Piper Sandler analyst Alex Potter is extremely bullish on Tesla, with a latest price target of $2,322. In his report, Potter used a discounted-cash-flow, or DCF, model that takes into account a financial model designed to forecast sales, profit margins, and interest rates. At the core of Potter’s argument are two assumptions. The first is that Tesla has a big lead in the software-driven car features, which it does and will sell for thousands of dollars. The other talks about a strong delivery numbers for Tesla cars in the coming quarters.

Morgan Stanley’s Adam Jonas is also bullish on Tesla. The analyst last month upgraded the stock to "equal-weight" from "underweight" rating with a price target of $1360.

One of the most important things to keep in mind about Tesla is the company’s diversified revenue streams and projects. Tesla is heavily focused not only on cars, but also on energy, battery-based products and new fuel technologies. Innovation in these technologies take time to bear fruit. Therefore, Tesla is a long-term play.