Wall Street analyst sees Tesla stock hitting $258. Is it worth buying after the earnings drop?

Tesla‘S (TSLA -0.20%) The much-anticipated second-quarter earnings report was greeted with a bang by investors and some analysts. After the leading electric vehicle (EV) maker announced a surprising 444,000 vehicles delivered in the three-month period, investors thought the subsequent earnings announcement would also surprise on the upside.

However, profit margins continued to decline due to increased competition and price cuts. This led Citigroup analyst Itay Michaeli lowered his company’s price target from $274 to $258 per share. But that still represents nearly 20% upside after Tesla shares fell in response to the quarterly report.

The decline comes after investors anticipating a more positive report had driven up the stock sharply over the past month. But the reaction to the earnings results has pushed Tesla shares into negative territory this year.

Tesla continues to generate cash

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

That’s the main reason Michaeli wasn’t impressed with the results. But like many Tesla investors, his focus remains on potential upcoming catalysts, including a new, low-cost model and an autonomous robotaxis.

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