Analyst dares to say 'sell' Tesla's cult stock

Published Wed, Mar 25 201512:58 PM EDT

One analyst on Wall Street Wednesday downgraded shares of Elon Musk's Tesla , becoming one of the rare Wall Street bears on the stock, which remains very popular with the trading crowd even after entering a bear market. Andrew Fung of CLSA moved Tesla Motors to underweight, the equivalent of a sell rating, on concerns over sluggish demand and lower-than-expected margins for its new Model X vehicle. These factors could cause the company to miss analysts' estimates this year, he said. "Investors may breathe a sigh of relief if Tesla delivers on its 1Q targets, but beyond that we believe the stock could continue to underperform this year as investors debate over Tesla's demand and earnings trajectory," wrote Fung. He is just the second out of 21 analysts who recommend dumping the popular stock, according to FactSet. The shares are down about 30 percent from their all-time high of $291 in September. After the stock price has risen more than 500 percent in the last two years, investors have increasingly turned bearish on Tesla. Short-interest now stands at 30 percent of the float. The recent decline led half of the analysts on the street to lower their price target estimate in the past 75 days, but they still remain uber-bullish on the name. The average consensus price target for the next 12 months stands at $250, or 27 percent higher from where the stock trades. The recent downgrade by CLSA also alludes to macroeconomic factors, such as the falling price of oil, currently weighing on the stock. "Tesla's outlook hinges on material growth in volume and general adoption of EVs (electric vehicles). If demand trends shift away from Tesla and EVs, the company's long-term viability would be at risk," stated the report. Read More What to buy off the Kraft-Heinz merger Source: FactSet To be sure, the long-term outlook may not be so bleak. Fung believes the stock may be attractive for buy and hold investors as the company taps into China for growth. The analyst also predicts Tesla's entry into a new category: energy storage. He cites a report on how falling battery costs are setting the groundwork for a potentially massive industry. "According to Chet Lyons (founder of Energy Strategies Group), we have entered the early stages of what will soon become a giant global industry impacting every aspect of society: energy storage. Cheaper and more powerful batteries are already being used to perform a variety of regional, local and project-specific, energy-balancing functions that are valuable or critical to society. New and improved batteries are increasingly being used to support and replace conventional power generation, transmission and utility distribution infrastructure." Still, with $2.5 billion in total debt, or 43 percent of total assets, and no cash on the balance sheet, this "cult stock" may continue to see pressure in the near term.

Scott Mlyn | CNBC