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Note: Story was updated to reflect the closing price of TSLA on Wednesday.
Tesla’s stock price survived an Oct. 2 Model S fire incident, but as the company’s widely anticipated third-quarter results are due in less than two weeks we might be seeing its shares hitting a period of high altitude turbulence ahead of the release. On Wednesday Bank of America reiterated its view that shares in Tesla Motors Inc. (NYSE:TSLA) are “vastly overvalued from a fundamental standpoint” and issued a bearish, or more like grizzly bearish, 12-month price target of $45 for a stock that hit its 52-week summit of $194.50 just over three weeks ago.
Here’s what BoA analyst John Lovallo said in a report that shaved over $7 off a share of TSLA by close of market in New York on Wednesday, to $164.50.
“We have also expressed concern that retail investors could ultimately be at risk, as institutional ownership of Tesla shares continues to wane. ... Thus far we have largely been howling at the moon, but believe it is worth considering what could occur when sentiment behind a momentum-driven stock shifts. This appears to be slowly occurring, driven by factors such as the recent Model S battery fire and potential NHTSA probe, and speculation of a slowdown in the company's European expansion. In fact, Tesla shares are down roughly 12 percent from their Sept. 30 closing price of just over $193 a share. While the recent decline pales in comparison to the year-to-date hyperbolic growth of the shares, it could foreshadow emerging cracks in the seemingly ironclad façade surrounding Tesla's stock.”
The note refers to the annoucement on Tuesday in Washington by the National Highway Traffic Safety Administration that it would investigate the Oct. 1 Tesla Model S fire south of Seattle after the agency reopened. The government shutdown temporarily halted NHTSA and other regulatory government activity.
Bank of America has issued its most cautionary note since the start of Tesla's surge in May. Since then, institutional investors have been scaling back their exposure. Meanwhile, the Teslots (Tesla zealots) have been hyping and pumping the stock, luring average Joes and Janes – without access to sound investment advice – to buy shares. While some have walked away folding lettuce into their wallets on this quickly inflating equity bubble, there will be a lot of losers in short-term stock gambling.
Tesla will report its third-quarter earnings on Nov. 5. Look for the company’s sales volume numbers, any information about its progress in Europe, and pay more attention to the GAAP (generally accepted accounting principles) than to the non-GAAP: Tesla reports both of those. In its second quarter, the non-GAAP measure reported profit but the GAAP measure was in the red because it excluded carbon credit sales revenue and didn't treat the interest saved by paying a government loan back nine years early as income.