- Tesla's shares started the summer well but lost more than 30% at the beginning of July.
- However, they’re already starting to bounce back, and expectations are growing for the rally to continue.
- A poor track record in recent earnings reports is a risk that investors will have to be mindful of.
The late July and early August sell-off may have spooked many investors, but it also opened up some very tempting entry opportunities. Already, we’re seeing market-wide recovery rallies reclaim much of the lost gains, but there’s still some edge to be had for investors with the right level of risk appetite.
Take Tesla (NASDAQ:TSLA), for example. While it was at the forefront of the bull market through 2021, it’s noticeably one of the few tech titans that has seriously struggled in recent years. Still, from April through most of July, shares of the electric vehicle (EV) giant managed to gain about 90%.
The eye-watering 35% drop through the first week of August must have been a bitter pill for investors to swallow, but already, Tesla shares have recovered about half that drop.
The good news for investors is that while some of Tesla’s headwinds remain in place, there are several reasons to think more gains are coming. As we start to round the corner into the final quarter of the year, here are two reasons to buy and one reason to wait before jumping in immediately.
1st Reason to Consider Buying: Analysts' Bullish Updates for Tesla Stock
First up are the bullish analyst updates, some from just the past few days, that bode well for Tesla’s prospects. Monday saw the team at Piper Sandler reiterate their Overweight rating on the stock and their price target of $300. The update came after a Tesla-themed event that Piper Sandler ran, which involved going on-site and meeting some of the team.
Some of their key takeaways, which underpinned the bullish outlook, included how Tesla “leverages its full ecosystem” to win contracts and how Chinese competitors are “largely absent” from the U.S. market due to geopolitical risks and location challenges.
On the flip side, however, Tesla’s new factory in the Chinese city of Shanghai, expected to open next year, will strengthen its foothold in the key market as it looks to drive a recovery in demand. Looking ahead to the coming months, Piper Sandler sees Tesla’s robo-taxi event in October as a critical catalyst that should pull shares higher in the weeks before and after.
The sentiment largely echoed that of the Morgan Stanley team, who, at the end of July, also reiterated their Overweight rating on the stock while giving it a price target of $310. Considering that Tesla shares closed just over $220 on Tuesday evening, that’s pointing to an impressive targeted upside of 40% - a solid reason to consider buying if there is ever one.
2nd Reason: Tesla's Technical Setup
The stock's technical setup supports the bull’s thesis. Last Friday, Tesla shares recorded their first bullish crossover on the MACD line since April—investors who like to watch and follow changes in momentum like this signal.
A bullish crossover typically occurs when a stock starts to recover from a downtrend, confirming that the bulls are back in charge. The last time this happened, Tesla shares rallied 90%.
The stock has also bounced so hard from last month’s drop. It would have been easy for Wall Street to throw in the towel and say Tesla was simply too far away from a full recovery and too risky for their appetite. However, by gaining more than 20% in just two weeks, investors consider the recent sell-off to be overdone.
1 Risk Factor to Consider
Tesla doesn’t come without its risks, though. The EV industry is going through a fundamental shift right now, with demand among its lowest in years. Tesla has struggled as much as, if not more than, its peers, with some serious questions being asked of its CEO, Elon Musk.
It hasn’t helped that the company has missed analyst expectations in each of its last four earnings reports. Considering that Tesla had previously done the opposite for over two years and smashed analyst expectations, you get a sense of just how much pressure it's been under.
Investors getting involved will have to be mindful of the company’s next earnings report in October. Another miss there could put Tesla on the back foot heading into 2025. Depending on your risk appetite, it could be worth waiting to see if it can return to its winning ways before getting involved.
