Tesla Inc (NASDAQ: TSLA), one the darlings of tech investors, has been having a tough couple of quarters to put it lightly. While it wasn't surprising that the company's stock got caught up in the tech bubble bursting in 2021, after all, it was the years of super-low interest rates that had propelled the stock to gains of more than 3,000%.
While it's true that a major low was set at the start of 2023, with Tesla shares rallying almostst summer, it's been worrying since then. While the rest of the market, and tech stocks in particular, 200% through la started a jaw-dropping rally last November as the battle with inflation appeared to be won, Tesla has effectively been in a downtrend since July.
Fresh Earnings for Tesla
[content-module:CompanyOverview|NASDAQ:TSLA]For many, it's high time that the stock trades more in line with its peers in the automotive industry, but for others, the sell-off has created a serious entry opportunity that's worth considering. Let's take a look at the business case for this.
The company reported its Q1 earnings at the end of last month, and it's fair to say that investors had been expecting the worst. Tesla stock hit a 52-week low in the days beforehand, but despite registering a miss on the headline numbers, the stock has only rallied since then.
It feels like a "sell the rumor, buy the news" situation, where the band aid has been ripped off and a lot of uncertainty removed. Indeed, many were quick to laud the company's update on more affordable models and autonomous vehicles.
Becoming an AI Robotics Company
In the earnings call, CEO Elon Musk said Tesla is now an AI robotics company. Of course, any mention of artificial intelligence these days gets investors foaming at the teeth, so needless to say, this sparked a rally that is still unfolding.
Off the back of the update, the team at Wedbush reiterated their Outperform rating on Tesla shares, with analyst Dan Ives remaining bullish on the long-term potential, though wary of near-term volatility. Still his fresh price target of $275 is not to be sniffed at, and points to an upside of some 50% from where shares were trading on Thursday.
It was a similar message from Bank of America, who actually upgraded their rating on the stock to a Buy, having previously had it rated Neutral. They said the company's Q1 results were far from as bad as investors were worrying and said the "deck is now clear of negative catalysts."
With Tesla's price-to-earnings ratio now at 46, in rare double-digit territory, you can't help but get the feeling it's trading quite cheap here compared to its historical average. Risks remain, of course, and the weak profit and cash flow from last quarter will need to be rectified in the next earnings report if investors are to be convinced that a corner has been turned.
Reasons to be Excited
However, the 30% rally in shares since the company's report suggests many are already convinced of this, and last month's low could be a foundational bottom from which to stage a fresh rally from. This view will have been helped by Musk's surprise visit to China this week, and the announcement of Tesla's partnership with Chinese tech giant Baidu Inc (NASDAQ: BIDU).
This week also saw further proof that Musk isn't afraid to make tough decisions when it comes to getting back to solid profitability. The news that he was letting go 10% of the company's workforce earlier this month was added to by reports that he had fired senior executives and hundreds of employees from the company's Supercharger team.
With all this growth-friendly news, it's certainly worth keeping a close eye on Tesla shares in the coming weeks. Investors should look for shares to consolidate above $180, with any move above $200 likely confirmation that a rally has started.