Has Tesla stock found a bottom?

Key Points

• Tesla's shares have dropped nearly 20% year-to-date and 15% over the last three months, diverging from historical trends.
• Despite recent struggles, Tesla's stock saw a slight increase last week, sparking speculation about a possible turnaround.
• Tesla's fundamentals suggest potential overvaluation, but technical analysis indicates short-term support levels have been confirmed, potentially leading to higher prices.

So far, in 2024, it’s been a year to forget for the electric vehicle and technology giant Tesla NASDAQ: TSLA as shares have plummeted. Year-to-date, shares of the magnificent seven member have declined by almost 20% and nearly 15% over the previous three months. 

It’s a rare underperformance for the company as it has historically outperformed the overall market. However, that hasn’t been the case, as the SPDR S&P 500 ETF Trust NYSE: SPY, a benchmark for the market, is up over 5% year-to-date. The technology sector, Invesco QQQ ETF NASDAQ: QQQ, also increased by over 5% during the same period. 

However, might the tide be turning for shares of Tesla after the stock posted a green week last week, closing up over 3%? After beginning the week flat and holding above prior support, the stock rallied into the end of the week to post a modest gain. The recent action in Tesla, together with the overall market trading near all-time highs, beckons the question: Has Tesla bottomed, and is now the time to buy?

Let’s take a closer look.

Tesla’s recent earnings and current valuation

Tesla released its quarterly earnings data on January 24th, 2024, reporting $0.71 per share per quarter, falling short of analysts' consensus estimates of $0.75 by $0.04. Despite revenues of $25.17 billion during the quarter, slightly below analyst predictions of $25.64 billion, the company's quarterly revenue saw a 3.5% increase compared to the same quarter last year. 

With a current price-to-earnings ratio (P/E) of 46 and $4.31 earnings per share over the last year, Tesla anticipates earnings growth of 36.09% in the upcoming year, from $2.66 to $3.62 per share. Although Tesla has not confirmed its next earnings release date, it's estimated to be on Wednesday, April 17th, 2024, based on the previous year's reports.

From a fundamental point of view, one might argue that Tesla is overvalued, with a P/E of 46 and a forward P/E of 47. However, from a technical perspective, the stock's Relative Strength Index (RSI) of 49.15 places it close to oversold territory, making it a prime candidate for a leg up.

Sentiment remains mixed for Tesla

Despite possessing a cult-like following and being one of the most searched-for stocks, the sentiment surrounding Tesla remains bearish to mixed.

Tesla is among the most downgraded and lowest-rated stocks, according to a list of publicly traded companies that analysts have downgraded most frequently in the past ninety days. 

Based on thirty-four analyst ratings, Tesla has a consensus Hold rating. That rating has remained steady over the previous year, during which analysts placing Tesla as a Buy decreased from twenty to the current nine. The analyst’s consensus price target on the stock is $219.89, which forecasts a nearly 10% upside. While the two most recent analyst actions on the stock have not been favorable, both price targets are above the previous close for the stock. 

On February 5, Piper Sandler lowered its target for Tesla from $295 to $225. Daiwa Capital Markets downgraded the stock the following day and reduced its target from $245 to $195.

Support has been confirmed

From a technical analysis perspective, support has been confirmed in the short term, giving traders and investors a level against which to trade. After pulling into a previous support zone near $180 two weeks ago, the stock found support and buyers and has recently taken out the prior pivot high from earlier in the year. As a result, if the stock can continue to base above previous support and confirm higher lows, a move toward its 200-day Simple Moving Average might be the next target for a leg higher, currently near $233. With a Beta of 2.43, short-term volatility and significant outperformance relative to the market can be expected if a trend develops in Tesla.