Wall Street analysts are the most bearish they've ever been on Tesla following the stock's steep surge, which has seen shares nearly double this year. Many are saying the valuation looks stretched and is not supported by the underlying fundamentals.
Some 45% of analysts currently have a sell rating on the stock, while just 19% say the stock is a buy, according to estimates from FactSet. The remainder, 36%, have a hold rating on the stock.
This is the most bearish the Street has ever been on Tesla, going back to the company's initial public stock offering in June 2010. It's also the least bullish analysts have ever been.
Shares of Tesla started the year in an uptrend, and a number of factors, including record vehicle deliveries in the fourth quarter, pushed the stock higher throughout January.
On Jan. 29, the company reported fourth quarter earnings that blew through analyst estimates. This, in turn, kicked off a trading frenzy in the stock, which was already handily outperforming the broader market.
On Monday, Tesla opened at $673.69, and then surged 19.89% in a single day to close at $780. On Tuesday, the stock broke above $900 for the first time, hitting an all-time high of $968.99, before paring some of those gains into the close, and ending the day with a gain of 13.7%. On Wednesday, some of the enthusiasm faded and shares tumbled 17%, in part because the company said the coronavirus outbreak would delay deliveries.
Shares are now up 78% this year, and 220% in the last 6 months.
Tesla's rapid rise has many Wall Street analysts arguing that upside catalysts are already priced into the stock, and that the stock has now become detached from its underlying fundamentals.
"Taking our foot off the accelerator following the recent run," Canaccord Genuity analyst Jed Dorsheimer said in a note to clients Wednesday as he downgraded the stock to a hold.
Also downgrading the stock to a neutral rating, New Street Research said that there are "limited sources of further appreciation in the next 12 months."
Dorsheimer and Morgan Stanley's Adam Jonas are among the analysts who argue that there will be a more attractive entry point for investors down the line.
Jonas downgraded Tesla to an underweight rating on Jan. 16, citing a stretched valuation and an inability for the stock to maintain its strong momentum. He has a $360 target on the stock, which is 51% below where it currently trades.
"In our experience, we've never seen a stock rise that much that fast with such little regard to past fundamentals or track record," Needham analyst Rajvindra Gill said Wednesday while reiterating his underperform rating. "Irrational exuberance" has hit an all-time high, he added.
He noted that the company has never posted a profit for an entire year, and that year-over-year revenue growth decelerated in 2019.
Barclays compared the price action in the stock to the NASDAQ in 1999, saying it remains "fundamentally overvalued," while Bank of America highlighted 10 reasons "to stay cautious despite the hype." The list included Tesla's "not good or consistent" profitability and cash flow as well as the company's "creative accounting." The firm has an underperform rating on the stock, and a $350 target.
To be sure, there are analysts and investors who are extremely bullish on Tesla. Additionally, FactSet's ratings do not take into account every single Street analyst, and the ratio of bullish to bearish ratings depends, of course, on the number of people who cover the stock.
"Despite past production delays, parts shortages, labor cost overruns, and other difficulties, we expect Tesla to benefit from its dominant position in the electric vehicle industry and to improve performance in 2020 and beyond," Argus analyst Bill Selesky said on Monday as he upgraded the stock to a buy rating.
Jefferies also has a buy rating on Tesla, and in a recent note said there's a "favorable outlook for 2020 earnings," and that "execution improved through 2019."
Billionaire investor Ron Baron, whose firm Baron Capital holds roughly 1.63 million shares of Tesla, said Tuesday on CNBC's "Squawk Box" that the company has the potential to earn a trillion dollars in revenue within 10 years. Meanwhile, investment management firm ARK Invest — also a long-term believer in Tesla — at the end of January said the stock could reach $7,000 by 2024.
- CNBC's Michael Bloom, Nate Rattner and John Schoen contributed to this report.