On Wednesday, HSBC analyst Michael Tyndall adjusted Tesla's (NASDAQ:TSLA) stock price target, bringing it down to $120 from $138, while keeping a Reduce rating on the stock. The revision follows Tesla's first quarter performance which did not exhibit growth, with operating profit declining 56% year-over-year. The results were notably below the consensus expectations, with group revenues falling short by 4% and operating income missing by 22%.
Tesla's financials showed a significant free cash flow deficit of -EUR2.5 billion, contrasting with the consensus projection of +$100 million. This shortfall was attributed to an inventory build-up. Despite these results, Tesla's management indicated plans to introduce a more affordable model by the first half of 2025 and expressed confidence in the future prospects of its full self-driving technology.
The valuation approach employed by HSBC combines discounted cash flow and peer multiples to determine Tesla's price target. The assumptions for Tesla's ancillary businesses like full self-driving, Dojo, and Optimus, which are expected to generate revenue by the end of the decade, have been adjusted to account for increased uncertainty. This has led to a lower terminal growth assumption and consequently, a reduced price target.
The analyst acknowledged potential upside risks to Tesla's valuation, which could arise from a quicker transition to battery electric vehicles, Tesla gaining more market share, and a regulatory environment that favors autonomous driving. Despite the challenging quarter and adjustments to the price target, such factors could contribute positively to Tesla's future performance.
InvestingPro Insights
Following the recent financial performance update from Tesla (NASDAQ:TSLA), InvestingPro data provides a deeper look into the company's current valuation metrics and market position. As of the last twelve months as of Q1 2024, Tesla's market capitalization stands at a robust $527.61 billion.
The company's P/E ratio, a key indicator of market expectations about growth and profitability, is currently at 38.6, suggesting a premium valuation compared to the broader market. This is further underscored by an adjusted P/E ratio of 33.89, indicating a high expectation for future earnings.
Despite the challenges highlighted in the quarter, Tesla holds a significant place in the Automobiles industry as a prominent player. Its strong market position is reflected in a revenue growth of 10.12% over the last twelve months as of Q1 2024.
Still, it is important to note that analysts have revised their earnings downwards for the upcoming period, which could impact future valuation. Moreover, Tesla's stock has experienced volatility, with a price decrease of 15.31% over the past month, and it is currently trading near its 52-week low, which could represent a potential entry point for investors considering the long-term growth trajectory of the company.
For those looking to delve further into Tesla's financial health and market potential, InvestingPro offers additional insights. There are 21 more InvestingPro Tips available, which can provide a comprehensive analysis to help investors make informed decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and explore the full range of data and tips, including information on Tesla's cash flow, debt levels, and earnings multiples.
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