Popular electric vehicle maker Tesla (TSLA) was the worst performer in the S&P 500 index in the first quarter. The company will likely miss the consensus estimate for the first quarter. So, should investors consider buying, selling or holding the stock now? Read on to know my point of view.
Shares of electric vehicle (EV) pioneer Tesla, Inc. (TSLA) fell 29% in the first quarter, marking the stock’s worst stretch since late 2022. The first-quarter stock price decline is It was the third steepest quarterly decline on record. Investor sentiment has taken a hit amid expectations of lower-than-expected vehicle volume growth this year, lower margins, intensifying competition and declining demand for electric vehicles.
In this article I discussed why it might be wise to avoid stocks now.
TSLA has had a rocky start to 2024, with the stock posting the worst performance in the S&P 500 at the end of the first quarter. Meanwhile, the S&P 500 Index posted its best first quarter since 2019, returning 10.2%. TSLA stock’s poor run has been supported by expectations that the electric vehicle maker will fail to meet Wall Street’s expectations for deliveries and revenue in the first quarter.
Analysts expect deliveries of 457,000 units in the first quarter. In its fourth-quarter earnings report, TSLA said the vehicle volume growth rate could be significantly lower than the growth rate achieved in 2023, indicating the automaker may miss Street estimates of 2.19 million for 2024. TSLA has also struggled due to increased competition from manufacturers like BYD in China.
New players like Xiaomi are also entering the lucrative EV market with cheaper offerings. Despite TSLA’s price cuts, its sales have remained sluggish in China. Additionally, slowing demand for electric vehicles has led the company to reduce production at its Shanghai plant. Wells Fargo downgraded TSLA to “underweight” and lowered its price target from $200 to $125. Bernstein lowered his target price on the stock from $150 to $120.
Here’s what could influence TSLA’s performance in the coming months:
Mixed financials
TSLA’s total revenue for the fiscal fourth quarter ended December 31, 2023 increased 3.5% year-over-year to $25.17 billion. Its total automotive revenues increased 1.2% from the prior-year quarter to $21.56 billion. The company’s net cash from operating activities increased 33.3% year over year to $4.37 billion.
On the other hand, its adjusted EBITDA declined 26.9% year over year to $3.95 billion. Its non-GAAP net income attributable to common shareholders fell 39.5% from the year-ago quarter to $2.49 billion. Additionally, EPS attributable to common shareholders was $0.71, a decline of 40.3% year-over-year.
Mixed analysts’ estimates
Analysts expect TSLA’s EPS for fiscal 2024 to decline 4.1% year over year to $2.99. Its revenue for fiscal 2024 is expected to increase 11.7% year-over-year to $108.10 billion. EPS and revenues for fiscal 2025 are expected to increase 39.2% and 20.3% year over year, to $4.16 billion and $130 billion, respectively.
High profitability
In terms of trailing 12-month EBIT margin, TSLA’s 9.19% is 19.5% higher than the industry average of 7.69%. Likewise, its trailing 12-month net income margin of 15.50% is 232.2% higher than the industry average of 4.67%. Furthermore, its trailing 12-month return on equity of 27.95% is 147.9% higher than the industry average of 11.28%.
Elongated evaluation
In terms of forward non-GAAP P/E, TSLA’s 58.78x is 266.5% higher than the industry average of 16.04x. Its forward non-GAAP PEG of 3.84x is 141.5% higher than the industry average of 1.59x. Likewise, its forward EV/EBITDA of 32.39x is 231.8% higher than the industry average of 9.76x.
POWR ratings reflect gloomy outlook
TSLA has an overall rating of D, equivalent to a Sell in our POWR rating system. POWR Ratings are calculated by considering 118 distinct factors, each optimally weighted.
Our proprietary rating system also evaluates each security based on eight distinct categories. TSLA has an F grade for Value, in keeping with its high rating. Its beta 2.41 is consistent with the D grade of stability.
TSLA stock is trading below its 50-day and 200-day moving averages, justifying its D grade for Momentum.
TSLA is ranked #41 out of 53 stocks in the Auto & Vehicle Manufacturers industry. Click here to access TSLA’s growth, sentiment and quality ratings.
Bottom line
TSLA shares are trading below their 50-day and 200-day moving averages of $187.29 and $232.14, respectively, indicating a downtrend. Despite price cuts and incentives, demand for electric vehicles is expected to continue to decelerate. In addition to slowing demand, TSLA is facing increased competition from other manufacturers who have developed cutting-edge, more affordable offerings.
Given its high valuation and high beta, it might be wise to avoid the stock now.
Actions to consider instead Tesla, Inc. (TSLA)
The chances of TSLA outperforming in the weeks and months ahead are significantly compromised. However, there are many industry competitors with impressive POWR ratings. So, consider instead these three stocks rated A (Strong Buy) and B (Buy) from the Automobile & Vehicle Manufacturers sector:
Mercedes-Benz AG Group (MBGAF)
Honda Motor Co., Ltd. (HMC)
Bavarian Motor Works Corporation (BMWYY)
What to do next?
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TSLA shares rose $2.41 (+1.37%) in premarket trading Monday. Year to date, TSLA has declined -29.25%, compared to a 10.39% increase in the benchmark S&P 500 index over the same period.
About the author: Dipanjan Banchur
Ever since he was in primary school, Dipanjan was interested in the stock market. This led him to earn a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
Moreover…
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