While the EV giant Tesla, Inc. (TSLA) had a fantastic run over the past year, gaining close to 340%, the stock has lost 25.8% since hitting its 52-week high of $900.40 on January 25, 2021. The stock declined 19.2% in February alone.

Increasing Treasury bond yields, which have led several investors to rotate away from expensive growth stocks an into value stocks, is partly responsible for Tesla’s  decline. The 10-year U.S. Treasury yield briefly topped the 1.6% level on February 25, its highest yield  since February 14, 2020.

And even though TSLA reported impressive financial results for the fourth quarter (ended December 31, 2020), the stock also retreated because the company had to shut down production of its Model 3 electric cars at its assembly plant in Fremont, California for two days in February due to parts shortages. Increasing competition in the EV space is also raising questions related to TSLA’s market dominance in the future.

Click here to checkout our Electric Vehicle Industry Report for 2021

So, here’s what we think could influence TSLA’s performance in the near term:

Impressive Financials

The company’s total revenues have increased 45.5% year-over-year to $10.74 billion for the fourth quarter, ended December 31, 2020. This can be attributed primarily to TSLA’s substantial growth in vehicle deliveries and its improvement in other parts of the business. Its non-GAAP net income for the quarter came in at $903 million, up nearly 134% year-over-year, and its non-GAAP EPS came in at $0.80, up 95.1% year-over-year.

Moreover, TSLA’s revenue and EBITDA have increased at CAGRs of 38.9% and 922.3%, respectively, over the past three years.

Increasing Competition

TSLA is facing increasing competition from other established companies, such as General Motors Company (GM) and Ford Motor Company (F). It was reported that in January the sales of the Hong Guang Mini EV built by Wuling (a partnership between China’s state-owned SAIC Motor and GM) exceeded those of TSLA’s Model 3 by nearly two-to-one. According to Morgan Stanley (MS), TSLA is also losing market share to F’s Mustang Mach-E in the United States.

The company is also losing  market share in Europe as companies such as Volkswagen AG (VWAGY) and NISSAN MOTOR CO., LTD. (NSANY)  gain in the EV space on the Continent.

Expensive Valuations

In terms of its non-GAAP forward price/earnings, TSLA is currently trading at 165.69x, which is  significantly higher than the industry average 18.20x. In terms of forward enterprise value/sales, the stock’s 14.27x is 775.5% higher than the industry average 1.63x. The stock’s forward price/sales of 13.72x is also 955.4% higher than the industry average  1.30x.

Also, Wall Street analysts expect the stock to hit $608.45 in the near term, which indicates a potential decline of 15.3%.

POWR Ratings Don’t Indicate Enough Upside

TSLA has an overall rating of C, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. TSLA has a B grade for Momentum. This is justified given TSLA’s 60.5% gains over the past six months and 10.1% gains over the past three months.

However, the stock has an F grade for Value consistent with its significantly higher-than-industry valuation ratios.

We have also graded TSLA for Growth, Stability, Sentiment and Quality. Get all TSLA’s ratings here.

TSLA is ranked #35 of 53 stocks in the B-rated Auto & Vehicle Manufacturers industry.

Better than TSLA: Click here to access several other top-rated stocks in the same industry.

Bottom Line

Despite TSLA having partly pioneered the EV revolution, its first mover advantage seems to be fading as several other companies are  now ramping up their EV production. Furthermore,  the company is currently trading at a premium valuation. So, we think it is wise to wait for better entry points.

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TSLA shares were trading at $621.42 per share on Thursday afternoon, down $31.78 (-4.87%). Year-to-date, TSLA has declined -11.94%, versus a 1.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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