Market Overview

Analyst: S&P Passed On Tesla Because It's 'Profoundly Overvalued'

Share:
Analyst: S&P Passed On Tesla Because It's 'Profoundly Overvalued'

Tesla Inc (NASDAQ: TSLA) shares recovered more of their losses on Thursday after the stock logged its worst day in history to open the week. Tesla shares dropped more than 21% on Tuesday due to S&P passing on including Tesla in the S&P 500 index, a decision that has triggered mixed responses from market analysts.

On Wednesday, DataTrek Research co-founder Nicholas Colas said he was very surprised to see S&P shunned Tesla.

“The S&P 500 Committee’s decision not to include Tesla in the index just yet is about as brave a move as you’ll ever see from this group. It can only have come from a collective and committed view that TSLA is profoundly overvalued and sits on shakier fundamentals than its mega market cap indicates,” Colas wrote in DataTrek’s daily newsletter.

Profitability In Question: GLJ Research analyst Gordon Johnson said earlier this week there were a number of good reasons why S&P didn’t add Tesla. In particular, Johnson questioned Tesla’s valuation, the quality of Tesla’s earnings and the demand outlook for its vehicles.

“Over the past 26 quarters, in only 4 of those quarters, excluding one-time credit sales, has TSLA shown positive net income (these are one-time earnings, according to TSLA, and will fall materially as the bulk of car makers are now making EVs limiting their need to buy credits from TSLA),” Johnson wrote.

Colas has also mentioned Tesla’s heavy reliance on regulatory credit sales as a potential red flag for S&P, which requires all S&P 500 components to be profitable on a GAAP basis.

GLJ has a Sell rating and $19 price target for Tesla.

Etsy Vs. Tesla: Seabreeze Partners President and Tesla short seller Doug Kass said S&P choosing Etsy Inc (NASDAQ: ETSY) to include in the S&P 500 over Tesla is also telling.

“[The] feckless S&P committee that could care less about anything (price, valuation, fundamentals) not only deemed TSLA unworthy, they deemed TSLA so unworthy that ETSY, a tchotchke broker with 1,250 employees, got in ahead of them,” Kass said this week.

Benzinga’s Take: The S&P selection committee may be dragging its heels on including Tesla on hopes that the stock’s valuation will come back to earth at some point, potentially reducing the risk and volatility associated with adding the stock to the index. In the meantime, the committee can justify the delay due to the concerns Colas and Johnson pointed out about the profitability of Tesla’s core auto business without the sale of regulatory credits.

Related Links:

Short Seller Compares Nikola To Theranos: 'Intricate Fraud Built On Dozens Of Lies'

'Best-In-Class Powertrain Technology Affirmed': Analysts React To GM-Nikola Partnership

Latest Ratings for TSLA

DateFirmActionFromTo
Sep 2020BairdMaintainsNeutral
Sep 2020Canaccord GenuityMaintainsHold
Sep 2020Deutsche BankUpgradesHoldBuy

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

 

Related Articles (TSLA)

View Comments and Join the Discussion!

Posted-In: DataTrek Research Doug Kass electric vehicles GLJ Research Gordon JohnsonAnalyst Color Top Stories Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
JACKNorthcoast ResearchReinstates108.0
ENPHB of A SecuritiesInitiates Coverage On93.0
SELBWilliam BlairDowngrades
LHXUBSUpgrades
BAXCitigroupUpgrades94.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com