Tesla's S&P 500 inclusion is reckless and the stock should be 73% lower than current levels, says an equities analyst
- New Constructs CEO David Trainer says Tesla's inclusion in the S&P 500 next week will pile on unnecessary risks for investors.
- "We think Tesla's inclusion in the S&P 500 marks a new peak in the recklessness of today's investment environment and will be the catalyst for the long-awaited reconciliation of Tesla's valuation with the firm's poor fundamentals," the veteran stock analyst said in a Thursday note.
- Trainer says that Tesla's stock should be trading at $172 a share, 73% lower than current levels.
- Watch Tesla trade live here.
Tesla's inclusion in the S&P 500 spells trouble for investors, according to New Constructs CEO David Trainer.
"We think Tesla's inclusion in the S&P 500 marks a new peak in the recklessness of today's investment environment and will be the catalyst for the long-awaited reconciliation of Tesla's valuation with the firm's poor fundamentals," the veteran stock analyst said in a Thursday note.
Like analysts at JPMorgan, Trainer says that Tesla's stock price is overvalued and it's 716% rally this year is an ominous sign that a crash may be on the horizon. Trainer says that Tesla's stock should be trading at $172 a share, 73% lower than current levels. JPMorgan analysts have a price target of $90 for Tesla.
Trainer also said that the inclusion in the S&P 500 will pile on unnecessary risk for investors who have exposure to funds that passively track the index.
While the stock price will likely gain even more once it's added on December 21, the boost will be short-lived, added Trainer.
"After the rebalancing, we expect profit taking, especially from fund managers who may end up with a larger-than-expected weighting of Tesla in their client's portfolios because of the S&P 500 inclusion," he said.
Among Trainer's concerns for Tesla are rising competition within the electric vehicle market, consumer quality issues, and a drop in demand from Europe.
Tesla delivered an all-time high of 139,300 vehicle delivers in the third quarter of 2020, but Trainer noted that Tesla's Western European share of the electric car market has fallen from 34% in 3Q2019 to 14% in 3Q2020. In China, the bestselling EV is GM's Hongguang Mini, and it sells for 11% of the price of the Model 3, according to Trainer. He also sees General Motors' pledge to invest billions into electric vehicle production as a threat to Tesla.
Trainer also noted that Tesla ranked second to last in Consumer Reports' annual auto reliability study.
"Tesla may have finally exhausted the technical and sentiment support that has driven the stock to dizzying heights," the stock analyst said.
Shares of Tesla gained as much as 4.3% on Thursday and are trading around $647.