Tesla shares are burning rubber.
The stock rallied more than 6% on Wednesday after Jefferies boosted its price target to a sSreet high of $2,500, well above its current price of $2,153. That target hikes comes even after a more than 400% surge this year.
Tesla stock could be getting ahead of itself, warns Miller Tabak chief market strategist Matt Maley.
“The stock is in a bubble, and I’m not one of those perma-bears. I mean back 15 months ago when the stock dropped below $190, I said ‘back up the truck and buy with both hands’,” Maley told CNBC’s “Trading Nation” on Wednesday.
Shares traded as low as $178.97 in June 2019. Since then, it has rocketed 1,103% higher, boosted in part by a streak of quarterly profits and favor among retail investors.
Maley notes it still has long-term potential, which does not negate the high probability of short-term pain, pointing to Amazon‘s stretch in the 2000s as an example.
“We have to remember that Amazon was in a bubble in 2000. It crashed, it fell 90% — I don’t think Tesla is going to fall 90% — but it crashed, and then 10 years later it was running the world. So even if Tesla is going to run the world someday, it doesn’t mean it can’t drop significantly when it gets as overbought as it is right now,” said Maley.
Red flags in Tesla’s charts include a weekly relative strength indicator that has topped 85, above the 70 threshold that suggests overbought conditions, and a high premium to its 200-week moving average, Maley said. The stock is trading at a roughly 420% premium to that average, well above the previous record of 253%, according to his calculations.
“It is way overbought,” Maley said. “The stock has averaged at two pullbacks of 20% to 50% each year for the last 10 years. It’s only had one so far this year. I think it will have another one.”
Tocqueville Asset Management’s John Petrides agrees that Tesla’s valuation is beginning to look stretched.
“Past performance doesn’t indicate future results. You look at this stock price chart and what it’s done and you have to ask yourself, forget what’s done in the past, if you’re buying it today, what do you think Tesla’s worth in the future?” Petrides said during the same “Trading Nation” segment.
Tesla is trading at 165 times forward earnings, far higher than the 31 times multiple on the QQQ Nasdaq 100 ETF. Tesla’s next earnings report is set for the end of October.
