How Cathie Wood’s $3,000 Tesla Price Target Compares With the Street


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ARK Invest’s disruption guru and founder
Cathie Wood
 made waves this week with her $3,000 price target for

Tesla

stock. It’s way above Wall Street’s top target, but her timeline for shares to reach that level is farther down the road. In fact, her price target isn’t as far out as some might assume.

Take, for example, Jerry Jones. He bought the Dallas Cowboys for about $140 million in 1989. The team is worth about $5.5 billion today. That’s an incredible return but, thanks to the magic of compounding, equals only about a 12% average annual return.

Cathie Wood’s Tesla (ticker: TSLA) target works out to a roughly 37% average annual return, should the stock hit $3,000 at the end of 2025. That’s three times what the NFL team earned Jones.

Stock targets farther out in the future, like Wood’s, can look surprising. But they aren’t comparable with traditional Wall Street price targets, which typically represent where analysts expect a stock to trade over the next year.

Turning Wood’s target into a year-end 2021 target, more comparable to the Street, requires a little math and an assumption. Tesla is a richly valued, high-growth stock—and a volatile one at that. That means risk to investors. And investors typically require higher returns for more risk, maybe 20% a year on average.

Taking that into consideration, Wood’s $3,000 target for 2025 translates to a roughly $1,400 year-end 2021 price target. Put another way: If an investor paid $1,400 for Tesla shares at the end of 2021 and Wood turned out to be correct about Tesla shares hitting $3,000 at the end of 2025, the investor would earn 20% a year on average.

The $1,400 figure is bullish but it isn’t way out there. Wedbush analyst Dan Ives has a bull-case price target on Tesla shares of $1,250 a share. Bull cases are Wall Street analysts’ most optimistic scenarios. Often, analysts will have a bear-case scenario too. Analyst’s price targets often sit somewhere in the middle. Ives rates Tesla shares Hold and his official target is $950 a share.

Ives isn’t the only one with a bull-case price target. Morgan Stanley analyst Adam Jonas has a bull-case Tesla target of $1,232 a share. Jonas rates Tesla shares Buy and his official price target for the stock is $810. RBC analyst Joseph Spak rates Tesla shares Hold and his official target is the lowest of the three at $700 a share. His bull-case price target is $1,148 a share.

Wood’s price target is about 15% to 20% above the most bullish Wall Street projections. That’s a good way to view her $3,000 price target.

The missing part of this analysis is whether Wood or other Tesla bulls are correct. Whether or not Tesla stock ever hits $3,000 will come down to vehicle pricing, cost, market share, and competition. In market terms, 2025 is a long way away.

Tesla rose 2.3% Monday following Wood’s bullish report. Shares were up 0.2% on Tuesday. The

S&P 500

and

Dow Jones Industrial Average,

for comparison, are both down about flat.

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