After Quadrupling So Far This Year, Is Tesla Still A Buy?

After a 25% pullback from last month’s all-time highs, investors might have been starting to think that Tesla (NASDAQ: TSLA) shares were going to cool off for a while. They’d run up 90% in less than two weeks which, even for Tesla, is a bit of a stretch.

But a 20% jump over the last three sessions and a fresh upgrade from two Wall Street heavyweights has put paid to those thoughts for now and thinned the ranks of the bears.

Double Upgrade

Before the bell rang to start Friday’s session, Bank of America upped their rating on shares of the electric car maker to Neutral from Underperform. While it’s not quite the same as going from Neutral up to Outperform, it feels like a bear throwing in the towel and admitting shares are kind of where they should be. Analyst John Murphy is bullish on the company’s higher share price fuelling access to low-cost capital which will help to maintain and accelerate growth in the coming quarters, even after shares find themselves up 300% on the year already.

In a note to clients he said, "it is important to recognize that the higher the upward spiral of Tesla’s stock goes, the cheaper capital becomes to fund growth, which is then rewarded by investors with a higher stock price. The inverse of this dynamic is also true, and it is this self-fulfilling framework that appears to explain the extreme moves in Tesla stock to the upside and downside”.

Morgan Stanley also withdrew their bear case and lifted their rating on the stock from Underweight to Equal-Weight. Analyst Adam Jonas noted how "Tesla has been assembling assets/tech/people to put them in position to potentially unveil a vertically integrated battery supply business that resets the industry cost curve.”

At Risk Of A Pullback?

So while the ratings were decidedly neutral in form if not tone, Tesla bulls went into Friday’s session with two fewer bears to fight which helped push the stock up to its highest-ever closing price. It will be interesting to see if shares can maintain their buoyancy through the rest of the month as some weakness starts to creep into equities, in particular tech names.

With the S&P 500 pretty much at February’s pre-COVID high, it feels like the time is ripe for some profit-taking after a stunning summer for stocks and a phenomenal recovery rally from Q1’s crash. Looking at even some of the titans in tech that led the rally from the front, last week had some of their investors getting nervous.

At one point Netflix (NASDAQ: NFLX) was down 9% from the previous week’s close, Facebook (NASDAQ: FB) was down 8% and Microsoft (NASDAQ: MSFT) was down 6%. While this earnings season has for the most part been stellar, with many of these stocks crushing expectations, it’s been tempered by the fact that the bar had been set unusually low.

Plenty Of Catalysts

Still, Tesla’s Q2 earnings report in July made it four quarters in a row of profit and means that they can now tick off most of the requirements needed to be included in the S&P 500 index. This would be seen as a major step in maturity and would open the stock up to be bought by a wider range of funds that are mandated to only buy stocks in the benchmark index. A 5-for-1 stock split last week made shares more available to the general public and had experts scratching their head as it seemed to be responsible for a 7% jump in market cap when in theory, nothing had changed to the valuation.

So as we roll past the halfway mark of Q3, it’s safe to say that Tesla investors have plenty to keep them busy. Even with the jaw-dropping rally we’ve seen so far this year, there’s still plenty of catalysts on the horizon for investors to be excited about.

As a high growth stock, Tesla is vulnerable to a return of a risk-off sentiment but as we’ve seen every other time that shares sold off, be it the first quarter of 2019 or 2020, there’s a cohort of Wall Street and Main Street that won’t let them stay down for long.