Tesla (NASDAQ:TSLA) shares have found support in recent trading days, but following my TSLA stock analysis it’s hard to be confident that a rebound is just around the corner. After trending lower, shares tumbled further in response to the company’s quarterly results. Even as it may appear the dust has settled, one can make a convincing argument on either side about where TSLA is headed from here.
On one hand, plenty of strong long-term catalysts remain in motion. In time, they could help assuage key concerns at present. On the other hand, momentum could stay on the side of the skeptics. Sentiment about Tesla, and the EV sector overall, remains downbeat. So, is it time to buy, sell, or hold? Let’s find out.
TSLA Stock Could Keep Hibernating During ‘EV Winter’
Since the start of the year, shares in electric vehicle manufacturers have been in some market commentators have coined “EV winter.”
Investors continue to bail on EV stocks, from established names like Tesla, to the myriad of U.S., Chinese, and European early-stage “EV contenders.”
While shares in smaller peers are getting hammered by underwhelming delivery numbers and continued high cash burn, it’s a set of different issues placing pressure on TSLA stock.
The market is bidding down shares, for two reasons: the prospect of Tesla experiencing slower sales growth this year and the prospect of margins/profitability staying under pressure.
That said, with shares down by over 40% from their 52-week high, some bullish investors may believe these headwinds are already baked into TSLA’s valuation. In their eyes, long-term growth catalysts (more below) could eventually drive a rebound.
However, while TSLA may be “cheap” relative to its 52-week high, shares remain pricey in terms of traditional financial metrics.
As the company contends with its growth and margin issues, investors could continue to be hesitant to pay top dollar for shares. This could keep shares in hibernation. Or worse, result in a further de-rating.
Major Catalysts May Not Immediately Save the Day
Previously, I have talked about how hitting two milestones could kick off the next boom for TSLA stock. I’m talking about both Tesla successfully bringing fully autonomous driving technology and a low-priced vehicle model to market.
These breakthroughs, coupled with other catalysts (improving macro conditions in the U.S. and China, decreased competition from smaller competitors folding) could result in a return to high sales growth, and a rebound in margins.
Unfortunately, while these major catalysts are identifiable, it may take years before they all play out. While interest rates are still likely to come down this year, China’s current economic challenges could continue to affect demand growth in what is the world’s largest EV market.
There’s high uncertainty about whether Tesla will successfully bring bona fide “full self-driving” technology to market. Tesla CEO Elon Musk himself has stated that a lower-priced EV model isn’t set to debut until the second half of 2025.
Delays could always push this date back to 2026 (or later). In the meantime, between now and when the first EV sector green shoots emerge, TSLA could stay on a downward trajectory.
Bottom Line: Sell/Avoid, Until Tesla Reaches This Price
The possibility of further high growth has yet to disappear with Tesla. Even if “EV winter” persists through the spring, summer, and fall, don’t expect shares to fall down to single-digit/low-teens forward multiple. That’s the valuation that incumbent automotive stocks are currently trading at.
Instead, TSLA could bottom out at a valuation on par with other “Magnificent Seven” stocks (30-40 times forward earnings). Based on current earnings forecasts, for Tesla stock that would be between around $100 to $125 per share.
While it may seem far-fetched that another more-than-40% drop is possible, don’t forget what happened the last time sentiment for this stock bottomed-out. Before bouncing back in early 2023, shares fell to a valuation as low as 34 times earnings.
With this, here’s the bottom line. Sell/avoid TSLA stock for now, but keep it on your watchlist, as shares could once again become a growth stock bargain.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.