Wall Street’s bullishness for Tesla shares is at a 10-year high by one metric following a year of turbulence

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The stock market’s resurgent enthusiasm for Tesla Inc. is poised for a test Wednesday when Elon Musk unveils his latest and much-hyped “master plan” for the electric-vehicle maker.  

Expectations have been rising steadily ahead of the event, with several Wall Street analysts turning more bullish on the stock, taking the share of buy recommendations on Tesla to the highest in over a decade. Yet after a 70% surge in just two months, any further gains may require more fireworks than what the company’s chief executive officer is expected to deliver.

“Given the year-to-date run-up for the stock, we believe the bar has been raised into investor day — potentially setting the event up for a ‘sell the news’ reaction,” Barclays analyst Dan Levy wrote in a note on Monday. However, Levy, who has the equivalent of a buy rating on the stock, expects the event to “reinforce the long term opportunity ahead on Tesla.”

Tesla shares have taken investors on a dizzying ride over the past 18 months. Last year, they tumbled sharply as rising interest rates hammered growth stocks, slashing the company’s once more-than $1 trillion market capitalization to less than $350 billion by early January. 

Since then, however, the stock has staged a major turnaround amid a rebound in investors’ appetite for growth stocks and signs that demand for Tesla’s cars is improving. That view gained support from the EV maker’s better-than-expected fourth-quarter results and a move by President Joe Biden’s administration to expand EV tax credits. Tesla is now approaching the market capitalization of Berkshire Hathaway Inc., and if it passes that would make it the fifth most valuable company in the US.

All of those factors bolstered analysts’ optimism for the stock. Out of the 48 analysts covering Tesla, 30 now recommend buying it, the biggest share since October 2012. 

During the planned release of Musk’s third so-called master plan on Wednesday (the others were in 2006 and 2016) analysts expect updates on the company’s battery technology, details on its manufacturing capability, and most importantly, the announcement of a cheaper vehicle. Musk earlier in February tweeted that the March 1 event will be about “the path to a fully sustainable energy future for Earth.”  

Volatility around the day is almost a given, with options traders active in Tesla contracts, especially call options betting on share gains. Earlier this month, the volume of such calls hit the highest level since April 2022 on a 20-day rolling basis, data compiled by Bloomberg show.

Still, the breakneck run in the stock, coupled with soaring expectations, may limit further gains, at least in the short term. 

In part, that’s because the stock is getting expensive again by trading at about 52 times expected earnings, compared with 23 times for the Nasdaq 100 Index and 29 times for the NYSE FANG+ Index, according to data compiled by Bloomberg. Technicals are flashing some red signals, too: Despite a pause in the rally recently, Tesla shares are still trading close to the technical overbought region, suggesting any strong gains will likely meet with some resistance.

“While the analyst day is likely to provide some incremental details on the next-generation vehicle platform,” Sanford C. Bernstein analyst Toni Sacconaghi wrote in a note, “it is unclear that Tesla will be able to adequately address our concern around timing.” 

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