Why Tesla stock enjoyed a rally today

It's time to buy, according to one investment bank.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened  

Shares of Tesla (NASDAQ: TSLA) rose during intraday trading on Thursday, following bullish analyst commentary. As of 1:05 p.m. ET, Tesla's stock price was up more than 2% after rising as much as 5.7% earlier in the day. By market close, however, Tesla shares followed the market lower and closed the session 0.89% down.

So what 

With its shares down 30% in 2022, UBS analyst Patrick Hummel believes now is the time to buy the electric vehicle (EV) leader's shares.

Tesla's swoon coincided with a broader decline in the stock market. Growth stocks were particularly hard hit, as fears of inflation and the possibility of a recession drove investors to rotate into more defensive investments.

Coronavirus-related production challenges added to Tesla's troubles. CEO Elon Musk's bid to buy popular social media site Twitter, and the possibility that he would need to sell some of his Tesla shares to finance the deal, also concerned investors.

Yet Hummel thinks Tesla is poised to rebound. He believes the EV maker's share price could soar to $1,100 -- roughly 48% above its current price near $743.

Hummel argued that Tesla's sagging stock price belies the strength of its business and intriguing expansion potential. He noted the company's vehicle order backlog stands at a record high. He highlighted Tesla's ability to ramp up production as it scaled operations at its gigafactories. And he posited that Tesla's expertise in software and batteries would provide it with a sustainable advantage over its rivals.

Now what

Hummel sees Tesla's earnings per share (EPS) growing to $28 by 2025, up from $4.90 in 2021. If his projections prove accurate, the EV titan is currently trading for less than 27 times its per-share profits in about three years' time. Some investors find that valuation reasonable, and they're buying Tesla's shares today.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The author Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla and Twitter. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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