Tesla Stock Stalls as Valuation Concerns Linger Ahead of Earnings

Tesla stock price has more than doubled from its lowest level in April as investors pivoted from its challenges in the electric vehicle industry to its AI future. It was trading at $442 on Wednesday as traders waited for its third-quarter earnings, as valuation concerns persisted.

Tesla Stock Price at Risk Amid Valuation Concern

There are a few concerns facing the Tesla stock as it publishes its financial results. One of the biggest ones is the fact that it has become one of the most highly valued companies in Wall Street.

Its valuation concerns are notable since its business is not doing well. Data compiled by Seeking Alpha shows that the company has a forward price-to-earnings (P/E) ratio of 316 and a trailing multiple of 263.

On a non-GAAP basis, the company has a forward P/E ratio of 260 and a trailing one 206. These are all huge numbers considering that the S&P 500 Index has a forward P/E ratio of 22. Other automakers like Ford and General Motors have a multiple of less than 10.

It is common for fast-growing companies with wide moats to attract premium valuations. For example, a company like Visa, which has a dominant market share in the payment processing industry has always been highly valued.

Similarly, it is easy to justify Nvidia’s valuation as the company is a dominant player in the semiconductor industry. Analysts estimate that the company’s third-quarter revenue rose by over 55%.

Also, it was easy to justify Tesla’s valuation a few years ago when it was experiencing strong growth. It was also a fast-growing company as its revenue rose from $31 billion in 2020 to $53 billion in 2021.

Tesla is No Longer Growing

Things have changed in the past few years, and Tesla has moved from being an offensive player to playing defense. Analysts expect the results will show that its revenue stood at $26.7 billion in the third quarter, a 6% increase from the same period last year.

The revenue increase will be because American customers rushed to buy its vehicles ahead of the end of the $7,500 tax incentive. Its earnings per share (EPS) is expected to come in at 56 cents, down from 72 cents in the same period a year ago.

Analysts also see the fourth-quarter revenue guidance coming in at $25.46 billion, a 3.62% drop from the same period last year. Such a figure will bring its annual revenue to $94 billion, lower than the $98 billion it made in 2024.

According to Bloomberg, inventors justify the valuation based on Elon Musk’s promise that it can become a major player in the artificial intelligence industry. It is doing this by investing in full self-driving (FSD) solutions and its Optimums robots.

While these industries are promising, analysts quoted in the Bloomberg piece noted that the company has a long way to go to start making money in them.

Tesla Stock Price Technical Analysis

The weekly chart shows that the TSLA stock price has bounced back from the year-to-date low of $214 in April to $443 today. It has remained inside this range in the past few weeks as investors wait for its quarterly financial results.

The Tesla stock price has remained much higher than the 50-week and 100-week Exponential Moving Averages (EMA). While this is a good thing, there is a risk that it will go through mean reversion, a situation where an asset moves back to its historical averages.

The other risk is that the stock has formed a double-top pattern at $469, its highest level this year and in December last year. The neckline is at $215.

Therefore, the stock will likely have a bearish breakout after the financial results. If this happens, the next key level to watch will be the psychological level at $400, followed by the 50-week EMA at $335. A move above the double-top level will invalidate the bearish Tesla stock price forecast.