5 Challenges to Tesla's Growth

Tesla (TSLA) released Q2 earnings and revenues last week that beat analysts' expectations. The EV pioneer reported a record $1.1 billion in net income on $12 billion revenues. Still, Wall Read More... The post 5 Challenges to Tesla's Growth appeared first on TipRanks Financial Blog.

5 Challenges to Tesla's Growth

Tesla (TSLA) released Q2 earnings and revenues last week that beat analysts' expectations. The EV pioneer reported a record $1.1 billion in net income on $12 billion revenues.

Still, Wall Street wasn't that impressed, with the company's shares rising slightly following the release of the report. (See Tesla stock charts on TipRanks)

Apparently, investors are concerned with several factors that may slow Tesla's feverish share price growth soon, such as a high valuation, competition from "colonizers," a large China and bitcoin exposure, as well as rising material costs.

High Valuation

Wall Street is an efficient market, discounting good news and bad news on listed companies. As a result, shares are run-up ahead of good news and sold-off ahead of bad news. Sometimes, Mr. Market—to use Benjamin Graham's terminology—is too optimistic, sending the shares of listed companies well above their fundamental or intrinsic value. Other times, Mr. Market is too pessimistic, sending shares of listed companies well below their intrinsic value.

Tesla's shares are overvalued by many standards. TipRanks, for instance, estimates Tesla's 12-month-trailing return on equity to be a modest 12.41%, while estimates put Tesla's intrinsic value at $160.11, well below its current price level.

Competition from Colonizers

Once, Tesla had little competition, as the electric vehicle (EV) market it pioneered had little competition from traditional automakers. However, that's no longer the case, as General Motors (), Ford (F), Volkswagen (VWAGY), and Toyota (TM) are invading the electric market. (See Electric Vehicle Stock Comparison on TipRanks)

These "colonizers" of the EV market have the manufacturing experience, expertise, and distribution networks to scale up EV production and cross the "tipping point" of bringing EVs to the masses. Meanwhile, the entry of new competitors into the EV market could unleash price competition that will erode Tesla's revenue growth and profit margins. That's something Wall Street is watching closely in quarterly financial statements.

China Exposure

Tesla vehicles are trendy in China, given the country's pollution problem. That's why the EV pioneer derives close to one-quarter of the company's revenues.

At the same time, such a significant exposure on the Chinese market has its challenges, such as competition from Chinese colonizers like Nio (NIO), Li Automotive (LI), and Xpeng (), all of which have strong government backing. There is also the potential of China's crackdown on high-tech companies in order to catch up with Tesla.

Bitcoin Exposure

Tesla's CEO Elon Musk has an affinity for bitcoin. That's why he has been investing some of the company's cash in digital currency. As of the end of March, Tesla's $1.5 billion investment was worth $2.48 billion, based on the surge in bitcoin in the first quarter. However, that has its risks, too, given bitcoin's volatility. 

Adding to bitcoin's volatility are accounting rules that treat the digital currency as an indefinite-lived intangible asset. Thus, it is subject to impairment losses if its fair value decreases below the carrying value during the assessed reporting period. Companies cannot recover impairment losses for any subsequent increase in fair value until the asset's sale. Tesla reported bitcoin-related impairments of $23 million in Q2 as the price of digital currency dived. (See Bitcoin Stock Comparison on TipRanks)

Rising Material Costs

Together with traditional automobile makers, Tesla faces a severe material shortage due to supply chain disruptions during the COVID-19 pandemic, which is expected to slow down the pace of its feverish growth.

"While we're making cars at full speed, the global chip shortage situation remains quite serious," Musk told investors. "For the rest of this year, our growth rates will be determined by the slowest part in our supply chain," adding that there are a wide range of chips that will serve as that brake on growth.

Wall Street's Take

According to the analyst rating consensus, Tesla is a Moderate Buy, with 11 Buy, 7 Hold, and 4 Sell ratings.

The average Tesla price target is $741.76, which implies a 7.9% upside.

Summary and Conclusions

Tesla's recent earnings report provides plenty of support for the company's bulls. Yet the good news is already factored in the market value of the company's shares and then some. Meanwhile, the EV pioneer will be facing many other challenges from now on: a significant exposure to China and cryptocurrencies, competition from colonizers, and rising material costs.

Therefore, value investors might want to wait for a better price-entry point.

Disclosure: The author doesn’t own shares of Tesla.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The post 5 Challenges to Tesla's Growth appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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Betting on Momentum? 2 ‘Strong Buy’ Stocks to Keep an Eye On

General Grant understood that in life, momentum counts. He probably would not have phrased it that way, but his campaigns showed it – he always pushed forward, and turned any Read More... The post Betting on Momentum? 2 ‘Strong Buy’ Stocks to Keep an Eye On appeared first on TipRanks Financial Blog.

Betting on Momentum? 2 ‘Strong Buy’ Stocks to Keep an Eye On

General Grant understood that in life, momentum counts. He probably would not have phrased it that way, but his campaigns showed it – he always pushed forward, and turned any event toward meeting his long-term goals. He created momentum, and put it to his army’s service.

Market investors can make use of that same pugilistic attachment to momentum. Find a stock that has been on a roll, whose fundamentals are strong, and keep with it – that’s the essence of momentum investing. It runs in the face of the old cautionary adage that past performance does not guarantee future returns, but as Grant could tell you, you won’t succeed if you keep turning aside.

With this in mind, we used TipRanks’ database to look up two stocks that saw their share price surge to recent record highs. And best of all, some analysts believe the stock has a way to go yet, while both have received overwhelmingly bullish praise from the Street, enough to earn a “Strong Buy” analyst consensus. Let’s take a closer look.

Jones Lang Lasalle, Inc. ()

Based in Chicago, Jones Lang Lasalle is a globe-spanning real estate and investment management company, offering a range of services to high-net-worth customers. Services include agency leasing, finance, project and property management, tenant representation, valuations, and more. The customer base includes institutional and retail investors, corporate clients, and the very wealthy. This is a high-end company, tailoring real estate services to a well-heeled clientele.

JLL benefits from a clientele that has both wealth to spend and need for professional management of it, no matter what the overarching economic conditions. This basic fact underlies the company’s revenue performance over the past two years, including the COVID crisis and recession. JLL’s quarterly revenue for the last 9 quarters has stayed between $3.7 billion and $5.4 billion, with a pattern of relative lows in Q1 gradually rising to relative highs in Q4. EPS has shown a similar pattern, albeit with greater ‘noise’ in the data.

The company’s business generates substantial cash, and in 2020 JLL saw a record level of $1.11 billion in cash from operations. This was a 131% increase from 2019, and made more impressive by coming during the COVID year. The company registered strong cash collections on its receivables during the year. 2020 also saw substantial reductions in company debt, from $670 million at the end of 2019 to $192 million at the end of December 2020.

With such a firm financial foundation, it’s not surprising that JLL has also seen strong share price momentum. The stock is up 124% in the last 12 months and 50% since the turn of the year – far above the 17% returns notched by the S&P 500.

Covering JLL for Wolfe Research, Andrew Rosivach is impressed by its recent growth and likely prospects. He initiates his coverage with an Outperform (i.e., Buy) rating, and his $332 price target implies a one-year upside of 49%.

Backing his stance, Rosivach writes, “We assume cyclical growth from transaction-based business lines (i.e. leasing and capital markets) will lead to outsized earnings growth in the near term. If volumes do not recover at the pace that we expect, earnings growth may not be as substantial. However, given tight credit markets, current conditions are constructive for growth particularly in capital markets. (To watch Rosivach’s track record, .)

Wall Street is clearly bullish here, and the Strong Buy consensus rating is based on 4 positive reviews. The shares are priced at $222.57; their average price target of $248 suggests room for 11% upside in the next 12 months. (See JLL’s stock analysis at TipRanks.)

Arvinas Holding Company ()

The second stock we’ll look at, Arvinas, is a clinical-stage biopharma company engaged in the development of protein degradation therapeutics. This is a fascinating field, and a new class of drugs tailor-made to target specific disease-related proteins. Proteins are present in all biological reactions at the cellular level, and the human body has natural processes for disposing of denatured proteins; Arvinas’ technique is to harness those protein disposal systems to cause degradation and breakdown of disease-causing protein molecules. The company has a proprietary development platform, PROTAC, to engineer proteolysis targeting chimeras.

Over the past year, Arvinas has seen its shares spike twice, once in December and once in July. The December spike coincided with news that ARV-110 and ARV-471, the company’s most advanced drug candidates, had both shown positive results in early testing, the former as a treatment for prostate cancer and the latter as a breast cancer therapy. Both drugs showed acceptable safety and tolerability profiles, along with evidence of efficacy in anti-tumor activity. Both candidates are now undergoing Phase 2 studies.

In July, the company announced additional upbeat news about ARV-417. Arvinas disclosed that it will be working with Pfizer in a global collaboration to commercialize ARV-417. The agreement stipulates that Pfizer will make an up-front payment of $650 million in cash to Arvinas, with an additional $350 million separate equity investment in the company.

These positive developments have helped shares climb by an impressive 212% over the past 12 months. They have not just sparked investor interest in ARVN – they have also prompted Wall Street’s analysts to take notice. From H.C. Wainwright, 5-star analyst Andrew Fein writes, “The major takeaway from the [Pfizer] deal, according to us, is the potential of ARV-471 in combination therapy with Pfizer’s CDK4/6 inhibitor…. not only does the collaboration validate ARV471 but it also boosts other degrader programs in the TPD (targeted protein degradation) landscape. Therefore, considering ER degraders as still a brand-new approach in the oncology space, we remain cautiously optimistic regarding the prospect of ARV-471 and ARV-110, as we head towards 2H21.”

Unsurprisingly, Fein reiterated a Buy rating on this stock, and raised his price target from $100 to $135, implying a 12-month upside of 33% for the shares. (To watch Fein’s track record, .)

This company’s headline grabbers grabbed the attention of 9 analysts. Their collected reviews are unanimous, to Buy the stock, giving ARVN shares a Strong Buy consensus rating. The stock is selling for $101.1, and its $126.44 average price target suggests it has room for an extra 25% of share appreciation in the year ahead. (See Arvinas’ stock analysis at TipRanks.)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The post Betting on Momentum? 2 ‘Strong Buy’ Stocks to Keep an Eye On appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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