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Investors in Tesla Motors have not had much to complain about this year, with the electric carmaker reporting surprise profits and its stock surging more than 250%. But with shares near the $120 level a Goldman Sachs analyst is warning the company may be priced for perfection.
Patrick Archambault proposes something of a Goldilocks case for Tesla, three different scenarios withing a broader research report on the automotive industry published Tuesday.
One sees the company selling 105,000 vehicles with a 14.6% operating margin,. The second, more bullish case has Elon Musk's company selling 200,000 vehicles and garnering a 3.5% global share in the luxury auto market-- "consistent with the typical 3-5 year share gains seen by the most successful industry players across multiple luxury sub-segments over the past decade" -- with 15.2% operating margin. The third, or middle-of-the-road, scenario calls for volume of 150,000 units and 14.8% margins.
Goldman comes up with implied stock prices of $58 in the bearish case, $83 at the midpoint version and only $113 in the bullish case. Averaging them out, Archambault comes out with a target price of $84, which would be a sharp drop from the current levels.
Shares of Tesla dropped 6.6% to $118.91 Tuesday, still above the $113 Goldman sees the stock worth in a best-case scenario and still far higher than the $40 neighborhood at which its incredible run began.
Tesla's recent run of success has not been the only positive trend in the auto industry. Detroit's Big Three -- General Motors Ford Motor and Chrysler -- have enjoyed rising U.S. sales that help overshadow continued weakness in Europe.
Goldman notes that auto stocks historically underperform during periods of rising interest rates, and warns that the sector is no longer as compelling a valuation play "as opposed to 6 months ago when multiples were well below average."
Names like GM and Ford can bring "secular growth to the table," Goldman's report says, noting their "product driven growth stories in multiple regions." While the firm rates both at a buy, it sees "stronger near-term catalysts" for GM, including better second half margin performance thanks to truck sales in North America and the possibility of a dividend relaunch by the end of 2013. In June, the automaker said it would start paying dividends on preferred shares.