Is Tesla Overvalued? 2 Reasons It Might Be a Bargain

Shares of Tesla Inc. (NASDAQ: TSLA) closed at their highest level in almost a year on Dec. 16, extending a powerful rally that has been gathering pace in recent weeks. The stock is now up nearly 120% since April and roughly 25% since late November, with the most recent surge driven by renewed excitement around its expanding robotaxi ambitions.

As Tesla pushes through a long-standing layer of resistance and edges closer to blue-sky territory, its valuation has risen just as sharply. The stock’s price-to-earnings (P/E) ratio now sits around 317, its highest level in four years. For most companies, that would be a big red warning sign, especially after its most recent earnings report missed expectations. As is often the case with Tesla, however, the picture is more nuanced, and heading into the final few weeks of the year, there are several reasons to still think it is cheap.

A Valuation That Looks Extreme on Paper

For starters, there’s no getting around its bubbly valuation. A P/E ratio north of 300 places Tesla in territory that traditional value investors will struggle to justify, particularly given ongoing pressure on automotive margins, uneven delivery growth, and signs of plummeting demand in Europe. 

However, Tesla has rarely played by the rules and has developed a long-standing reputation for behaving more like a tech stock than a traditional automaker. Its shares have historically commanded a premium far beyond what investors are willing to pay for those of its peers, because few, if any, can match Tesla’s ability to disrupt. 

It would be easy to write this off as just another company that talks a big game, but then falls apart on execution. The thing is, though, Tesla has shown time and time again it can walk the walk. Take last weekend’s robotaxi update, for example. CEO Elon Musk confirmed in a post on X that "testing is underway with no occupants in the car, giving investors arguably the biggest sign yet that the company is on track to nail its robotaxi ambitions. 

Reason #1: New Highs Tend to Precede Even More New Highs

The first reason to still consider Tesla cheap is from a technical standpoint. As a general rule, when a stock hits an all-time high, it often follows that move with several more. So for Tesla, which just surged to a record high of $490 on Dec. 16, that breakout could easily be the first in a new string of record-setting moves.

This pattern has played out multiple times in the past, most notably in 2020, 2021, and 2024. While the $490 level had been a tough barrier to clear—and one that bears have vigorously defended for months—Tesla’s push through it now signals a meaningful shift in momentum. If there were ever a moment for Tesla to break free and extend higher, it’s this one.

Reason #2: Analysts Continue to See Massive Upside

The second reason to still consider Tesla a cheap stock, despite its triple-digit P/E ratio, is the strength of analyst conviction. This is something we’ve highlighted several times this year, and it continues to be a key pillar of the bullish thesis. 

One of the great things about Tesla, from an investor’s perspective at least, is that the analysts who cover it are always very quick to reiterate their bullish ratings and lift their price targets whenever the stock starts taking off. With other companies, they’d be forgiven for taking a more measured approach, or maybe even letting a bullish rating slip to Neutral until it’s clear the underlying fundamentals have caught up. But not Tesla. 

By halfway through last month, several bullish updates had already begun rolling in, pointing Tesla shares toward record levels. Stifel Nicolaus, for example, raised its price target to $508. Momentum continued to build this week, with Mizuho boosting its price target to $530 on Dec. 16, reinforcing the view that additional upside remains. A day earlier, on Dec. 15, Wedbush reiterated its bullish rating and Street-high $600 price target, which still implies roughly 25% upside from current levels.

A P/E ratio north of 300 will always raise a few eyebrows, but when multiple analysts are calling for as much as another 25% in upside, it’s hard not to feel that these current prices will come to be looked back on as a bargain.

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The article "Is Tesla Overvalued? 2 Reasons It Might Be a Bargain" first appeared on MarketBeat.