The stock of Tesla is inflated and could lose half of its value, according to Citi analyst Itay Michaeli.
Michaeli reiterated a sell rating on Tesla's stock with a price target of $424 in a note to clients. The stock of Tesla was trading around $923 per share on Wednesday.
Michaeli's bold call involves skepticism about Tesla's autonomous driving technology and the view that Tesla's stock - which is trading on a lofty forward P E ratio of 76 times - is not factoring in a deepening economic slowdown.
We think the current valuation remains challenging, considering the handful of other companies that have previously achieved Tesla's market cap, which generated $100 billion of gross profit on average compared to Tesla's second half of 2022, which is estimated annualized of $30 billion and $20 billion in the first half. In the current macro situation, we need to be aware that Tesla is adding a sizable Model Y capacity in what are now price-points $60 k US where the US market size is inherently smaller and where other EVs are also ramping up. Michaeli joined JP Morgan analyst Ryan Brinkman in reiterating a sell equivalent rating on Tesla's stock post-second quarter earnings.
Tesla has made a good argument to justify the current valuation of its stock, and maybe even a richer one.
Sales of the second quarter increased by 43% from a year ago to $14.6 billion. Operating profits went up 88% from a year ago to $2.5 billion.
The second quarter was better than feared, with healthy guidance for 2 H by Musk Co. that look achievable with no margin for error, Webush Tesla bull Dan Ives said in a note.
If CEO Elon Musk's prediction is true, the company could see an earnings tailwind later this year from cooling commodities prices.
If I was to guess - and I would take this with a grain of salt - I think inflation will decline towards the end of the year, Musk told analysts on an earnings call. The prices of commodities are seeing a drop. The new legislation could bring back demand-driving EV tax credits, according to Yahoo Finance's Pras Subramanian.
Brian Sozzi is an anchor at Yahoo Finance. Follow Sozzi on Twitter and LinkedIn.