Wall Street Analyst Thinks Tesla Stock Will Hit $258. Is It a Buy After a Post-Earnings Pullback?

You’re here‘s (TSLA -0.20%) The highly anticipated second-quarter results have been a hit with investors and some analysts. After the leading electric vehicle (EV) maker reported a surprisingly high 444,000 vehicles delivered during the three-month period, investors thought the earnings announcement that followed would also be a positive surprise.

However, profit margins continued to decline due to increased competition and price cuts. Citigroup Analyst Itay Michaeli lowered his firm’s price target on the stock to $258 per share from $274. However, that still implies a gain of nearly 20% after Tesla shares fell in response to the quarterly report.

The pullback came after investors anticipating a more positive report sent shares soaring over the past month. The post-earnings reaction, however, pushed Tesla shares into negative territory for the year.

Tesla continues to generate cash

Tesla’s report is actually mixed. While its auto profit margin continued to decline, the company still generated $1.3 billion in free cash flow after capital expenditures. But the auto profit margin, excluding regulatory credit revenue, fell to 14.6%. That’s down from 18.2% a year earlier and from 25.1% two years ago.

That’s the main reason Michaeli wasn’t impressed with the results. However, like many Tesla investors, he remains focused on potential catalysts ahead, including a new low-cost model as well as self-driving robotaxis.

As Tesla CEO Elon Musk has said, investors who don’t believe the company can deliver on its fully autonomous vehicle plan shouldn’t own the stock. The second-quarter report reinforced that sentiment. The company’s sales and earnings don’t justify Tesla’s stock valuation. Potential catalysts that could add value include the cheaper electric model, the energy business that had a record quarter, and a fully autonomous fleet. Those who don’t see these catalysts coming to fruition should look to invest elsewhere.