The Tesla stock has made one of the greatest bull-runs in recent history as far as big companies are concerned. Shares of the electric car maker have gained nearly 170% since June 2019. However, bullish markets, as everything else, don’t last forever.
The bulk of the current rally came in October last year, after the company surprised the market analysts when it announced better-than-expected quarter earnings. During the same investors’ call, Tesla notified the public that it is ahead of schedule with a new factory in Shanghai. Ultimately, investors urged to buy Tesla stock, which gained more than 30% in October only.
The second major boost happened in December, when the stock gained 6% in a single day, following reports that Tesla’s under-construction China factory is “on its way to smooth ramp”. The Shanghai-based factory is of great importance for Tesla as it will boost the company’s production volume with an additional 150,000 vehicles per year.
Finally, the stock surged in early January as a reaction to oil prices moving higher, as well as due to increased tensions in the Mideast. Of course, more expensive oil is a positive development for Tesla’s electric vehicles demand as they become more and more attractive.
All in all, the recent surge in the stock’s price has seen the market capitalization of Tesla now come around $1 billion shy of General Motors and Ford Motor, combined.
From the market perspective, it is difficult to advise investors into buying Tesla stock. As seen in the chart below, the price action trades in unchartered territory. The price has even cleared the first resistance around the $450 handle easily, after it surpassed Elon Musk’s famous $420 target.
All this information suggests that the market momentum is extremely strong. However, there are a few reasons that call for caution.
Tesla is known as a momentum-focused stock. In 2016 and 2017, the stock gained more than 100% in a few months as well.
“We recognize Tesla is a thematic [and] momentum stock whose price can disconnect from fundamentals for periods,”RBC analyst Joseph Spak said.
Any negative development that concerns Tesla directly, or the electric car industry, may hit Tesla’s stock price hard as there is plenty of room for a pullback.
Stock price trades well above forecasts
At the moment, the average analyst price target for Tesla stock is around $340, which is nearly 30% lower compared to the market price.
These numbers are a result of comprehensive and complex analysis of the company and the industry in which the company operates. While there is always a gap between the market price and average analyst price target, a gap of this size is not a regular occurrence.
Q4 earnings coming
Tesla is due to report its fourth quarter earnings at the end of January. While the car-making giant can again positively surprise market expectations, it’s difficult to assume that the market price will be at the record highs before earnings as some investors may want to protect their profits against the lower-than-expected Q4 results.
As shares of Tesla currently trade at an all-time high, the positive momentum continues to surround the electric car giant. However, Tesla stock may pull back in January as the market positions itself before the Q4 earnings announcement in late January.