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Tesla Faces Downgrades Despite Rise in Stock


Trading in Tesla stock is always unpredictable, and in recent days it has been particularly wild. However, today shares are up by 1% in early trading, despite the S&P 500 and Nasdaq Composite only rising by 0.2% and 0.4% respectively.

What’s making headlines today is the fact that there is no negative news surrounding Tesla. Over the last few days, the stock was downgraded four times in four days; however, the reasons for this were mostly based on valuation. This followed a significant rise in Tesla’s stock price of around 50% in just five weeks due to an EV charging deal with Ford Motor (F) and Nvidia’s (NVDA) impressive first-quarter results. Some investors view both Tesla and Nvidia as artificial intelligence (AI) plays.

This impressive gain increased Tesla’s market value by the equivalent of a Toyota Motor (TM) and General Motors (GM). However, at $277 per share, Tesla was $75 beyond the average analyst price target, meaning that Wall Street couldn’t keep up.

The average analyst target price for Tesla is currently approximately $208 per share, which is still $36 lower than its current trading price. Meanwhile, for the S&P 500, an average analyst price target typically sits around 10% to 15% above where a stock is currently trading.

The Tesla Price Target Situation

As we approach the end of 2023, Tesla has experienced a decline in the percentage of analysts covering the stock who rate shares as Buy, down from roughly 65% at the beginning of the year to about 40% currently. At the start of 2023, the average analyst target price was approximately $255 per share and Tesla stock traded at around $125.

The aforementioned price difference of over 100% is not a usual occurrence. Specifically, Tesla stock was weak and seemed uncertain in its approach towards the end of 2023, causing shares to drop more than 40% from late October when Elon Musk used Tesla stock to fund his purchase of Twitter.

While volatility is common for traders, it poses difficulties for Wall Street. Investors are now questioning what should be done with all of this instability.

“There are two types of Wall Street downgrades: those that are based on fundamentals and those that are based on price,” states Future Fund Active ETF co-founder Gary Black. “The former type is what I pay attention to.”

Black, who is both a shareholder and portfolio manager, brings up an important point. Investors cannot afford to buy and sell their stocks with each Wall Street move they encounter. That is the job of traders.

Traders do not mind the volatility – in fact, it can be beneficial for them. One trader even called Goldman’s Monday downgrade a “gift.”

Overall, investors need to exercise caution and pay attention to the fundamentals while navigating Tesla’s ever-changing price target situation.

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