Tesla: 2 Reasons to Buy, 1 Reason to Run

Key Points

• Tesla's shares surged at the end of last year but have since pulled back 25%, presenting a possible buying opportunity.
• Despite a disappointing earnings report, record revenue and bullish analyst targets suggest significant upside potential.
• Growth concerns remain, with some analysts downgrading Tesla and questioning whether it can sustain last year’s gains.

Tesla Inc. NASDAQ: TSLA has had a wild ride over the past few months. In the weeks following Trump’s election victory, the stock soared 130%, reaching an all-time high in December before momentum stalled. Since then, shares have fallen more than 25%, with investors taking profits and shifting to a more cautious stance.

While Tesla’s recent earnings report didn’t help sentiment, the pullback may be setting up a compelling buying opportunity. With bullish analysts calling for 45% upside, momentum swinging from the bears, and technicals improving, there are two strong reasons to buy, but also one big reason to stay on the sidelines.

Reason #1 to Buy: The Sell-Off Looks Overdone

Tesla’s January earnings report wasn’t pretty. Both headline figures missed estimates, and revenue growth was a disappointing 2% year over year. Given the stock’s massive rally in the months prior, this was enough to trigger a sharp sell-off as investors rushed to take profits.

But the market may have overreacted. Despite missing expectations, Tesla still posted record revenue, showing that demand remains strong. Additionally, much of the disappointment is now fully priced in; shares have fallen more than 25% since earnings, creating an opportunity for long-term investors who still believe in Tesla’s growth story.

Momentum also appears to be shifting back in Tesla’s favor. The RSI sits at 43 and is trending up, indicating that the stock is moving out of oversold levels. The recent downtrend could be nearing an inflection point for buyers thinking of stepping in at these levels.

Reason #2 to Buy: Analysts See Big Upside

Despite the post-earnings sell-off, analysts remain mostly optimistic. Just last week, Benchmark reaffirmed its Buy rating and issued a $475 price target. That echoed similar bullish calls from Stifel Nicolaus and Mizuho, which also reiterated their Buy ratings earlier this month.

The price targets from the latter went as high as $515, suggesting a potential 45% upside from Wednesday’s closing price.

Analysts point to Tesla’s long-term dominance in EVs and energy storage as reasons to stay bullish, even as near-term growth slows. With their sentiment remaining very much in Tesla’s favor, you can’t help but feel the recent pullback could be a great entry point before the next move higher.

1 Reason to Run: Growth Concerns Are Real

The biggest reason to avoid Tesla right now is slowing revenue growth. A 2% year-over-year increase is a far cry from the double-digit expansion investors are used to seeing. If Tesla can’t reaccelerate growth in the coming quarters, it will be difficult to justify the stock holding onto last year’s massive gains.

This risk has already been reflected in some bearish analyst calls. Needham & Company recently rated Tesla a Hold, and UBS Group went even further, issuing a Sell rating after January’s earnings report. Their hesitation suggests that not all of Wall Street is convinced Tesla will be able to regain its growth momentum anytime soon.

Why This Might Be the Perfect Entry Point

With Tesla now trading 25% off its highs, the risk-reward setup is looking more attractive. The RSI at 43 indicates that selling pressure is fading, while bullish analyst targets suggest that there’s significant room for upside. If momentum continues to shift and buyers step in, Tesla could be setting up for a strong recovery rally. But the next earnings report will be critical - if growth doesn’t improve, investors could see another wave of selling pressure.

Final Thoughts

Tesla’s post-earnings decline has created a major buying opportunity, but only for investors who believe in the Company’s long-term growth potential. The stock is up 10% in the past week, analyst targets suggest a lot more upside remains, and technicals indicate a possible rebound has started.

However, growth concerns remain the biggest risk. If Tesla can’t deliver a strong earnings rebound, the stock may struggle to hold onto its 2023 gains.

This could be a great entry point for those willing to bet on a turnaround. But for more cautious investors, it may be worth waiting until Tesla proves it can reignite growth.