Independent equity research firm New Constructs has expressed concern over the valuation of Tesla Inc. and Netflix Inc., describing them as “terribly overvalued” in a recent note by New Constructs CEO David Trainer.
According to Trainer, Tesla’s second-quarter earnings report only serves to confirm their view that the stock is one of the most overvalued in the market. Despite the surge in Tesla’s stock price this year, largely attributed to a shift in overall market sentiment, Trainer argues that the stock’s fundamentals remain disconnected from reality. In fact, New Constructs believes that Tesla is worth around $26 per share, a stark contrast to its current price of approximately $280 per share.
In 2023 alone, Tesla’s shares have risen by a staggering 114.5%, significantly outperforming the S&P 500 index’s gain of 18.2%. However, the stock experienced a 9.3% decline on Thursday as second-quarter results fell short of analysts’ expectations for a blowout quarter.
Trainer emphasizes that the widely held belief in strong demand for Tesla vehicles may no longer hold true. Despite previous claims that demand always exceeded supply, the company’s multiple price cuts in 2023 and less-than-impressive production levels in the first half of the year raise doubts about the actual demand for Tesla vehicles, particularly in the face of competition from automakers such as Ford, General Motors, and others.
In conclusion, New Constructs warns investors about the excessive valuation of both Tesla and Netflix stocks, suggesting that caution should be exercised moving forward.
Ford Motor Co. Cuts Prices on F-150 Lightning Electric Trucks
Ford Motor Co.’s stock experienced a decline earlier this week when the company made the decision to reduce prices on its F-150 Lightning electric trucks. In fact, prices were cut by as much as 17% for certain models. On the other hand, General Motors Co. recently saw a significant 19% surge in second-quarter auto sales.
Netflix Receiving Criticism for Being Overvalued
As a result, Netflix’s shares experienced an 8.1% decline on Thursday, largely impacted by these results. Trainer of New Constructs wrote, “Netflix’s second-quarter results reaffirm our view that the stock remains terribly overvalued and should trade closer to $153 per share, instead of its current price of about $440.” He further added, “We believe it’s time for the market to recognize that streaming is a terrible business with high costs, immense competition, and very little room for profitability.”
Caution to Investors: Look Elsewhere for Stock Opportunities
Despite Netflix’s impressive platform and content, Trainer suggests that investors should redirect their attention to other stock opportunities.
Netflix’s stock has seen a remarkable increase of 48.7% thus far in 2023.
New Constructs employs machine learning and natural-language processing techniques to analyze corporate filings and predict economic earnings, despite some skepticism surrounding their research methodology.