Tesla Inc (ticker: TSLA) shares are up 3 percent on Monday to new all-time highs following an extremely bullish upgrade from Piper Jaffray. Analyst Alexander Potter has upgraded Tesla stock from “neutral” to “overweight” and says the company and the stock simply play by their own rules.
Tesla, which shipped just 76,230 vehicles in 2016, has now officially passed General Motors Co. (GM) as the most valuable U.S. auto maker. General Motors is estimated to have sold about 10 million automobiles globally in 2016.
Potter himself has driven a Tesla for seven months. After experiencing a Tesla and speaking with company management about their outlook for the future, Potter is now convinced of the intangible value Tesla offers investors.
“More so than any stock we’ve covered, Tesla engenders optimism, freedom, defiance and a host of other emotions that, in our view, other companies cannot replicate,” Potter says.
Tesla bears argue that the company’s fundamentals do not justify its lofty share price. Last week, Barclays analyst Brian Johnson reiterated his firm’s underweight rating and $165 price target for Tesla, saying the stock is “disconnected from fundamentals” and “is more driven by momentum.”
Potter admits that there is merit to the bearish fundamental argument against buying the stock, but says Tesla stock is the exception to typical market valuation metrics.
“The company burns through cash at a rate that better-established companies would likely be crucified for – especially considering TSLA’s rickety balance sheet and penchant for raising equity,” Potter says. “We sympathize with bears, but their arguments probably won’t matter.”
Potter says investors looking to buy Tesla stock above $310 per share will need to use “creative” valuation strategies to justify the purchase and should be prepared for volatile market reactions to headlines about the Model 3 roll-out. However, he says…
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