Last Updated on September 8, 2020 by Henry John
The most shorted stock in the world by short interest value is Tesla at $16.5 billion, it’s dubbed “America’s most hated stock”. Like its proposed electric truck, the Tesla Cybertruck, Tesla is polarizing; lots of Tesla lovers and haters.
Now, whether you love or hate Tesla, as a pragmatic investor, its numbers and facts that should help guide your buy, hold or pass decisions. And this is true even for Tesla.
Looking at the facts and numbers, will Tesla’s stock crash or continue to rise?
On the short-term, Tesla’s stock could crash (slide) down to as low as $250 per share but the stock will continue to rise long term way beyond $600 per share.
This could be good or bad for you depending on what kind of investor (trader) you are. As a long-term investor, it makes all the sense to hold my Tesla long position but if you’re looking to make a short play, Tesla’s stock is highly risky (in other words, highly volatile).
Tesla’s stock is not exactly like Ericsson in 2000, Volkswagen in 2008 or Bitcoin in 2017. So don’t bet on Tesla sliding down dramatically and never gain the muscle to resurrect itself and go way point its previous high.
I’ve heard and read analyst who proclaim that Tesla will do a Bitcoin 2017, for years. And today some of those analyst have gone mute and billions of dollars have been lost by many investors who took Tesla short positions.
According to data from S3 Partners, a financial analytics firm, Traders have lost over $18 billion dollars betting against Tesla this year alone; that’s a sh*tload of money.
There are so many reasons why people get it wrong with Tesla and why many get it right but can’t explain why/how they got it right.
Stick with me through this article as I break things down for you and help you see Tesla better for what it is and then you can take a position on Tesla that will help you make money and not mess up your portfolio.
ATM Tesla Stock is Overprice/Overvalued but …
Tesla’s potential is making me bullish on it, I see it moving north in the long-term without the same degree of help from the undeniable forces that are currently pushing it up extraordinarily.
Let’s face it, Tesla’s stock growth this year is not ordinary, not in line with numbers and facts, not even close.
The ‘Tesla Short Squeeze’ explained so well by Dan Runkevicius on Forbes is possibly a “major factor” why Tesla stock skyrocketed this year, along with the fact that Tesla has performed beyond expectations in the last four quarters.
One couldn’t have done the trick without the other. The short squeezes won’t not have possibly driven Tesla stock price up if Tesla has been performing badly.
And there’s also a third factor: Tesla is somewhat a story stock and lately, there has been really good stories about Tesla. The possible S&P 500 inclusion is another story that if announced will give Tesla’s stock a momentarily push.
According to Aswath Damodaran, a professor of finance at the Stern School of Business NYU, Tesla’s value is driven by intangibles and very difficult to justify based on traditional financial metrics. It’s pretty much like Bitcoin, aside from the fact that Tesla has tangibles, it’s just not driven by it ATM.
Years back when I fell in love with Tesla, it was because I loved their story (and Elon’s too); it was like ‘Apple under Steve Jobs’ kinda thing. Tesla was going to change the world, going to make a difference; they have a really good why that resonates with potential customers and I bought into their why along with millions of others who not only became their customers but also investors.
Four years ago, the numbers didn’t add up but the facts did and today the facts and numbers are beginning to add up. Except for the stock price which is overpriced/overvalued even as a growth stock, and new investors looking to buy Tesla’s stock will be paying way too much to own the stock.
This could be bad on the short-term for new investors who can experience their $280 Tesla stock lose up to 30% of its value in a matter of weeks. Therefore, if you currently don’t hold a Tesla stock and are looking to buy but you can’t stomach such a short-term loss, do a Warren Buffett: Pass on Tesla.
Otherwise, jump in, five years from now, you won’t regret you did. And don’t frustrate yourself in an attempt to time the market, buy in now and if, Tesla’s stock dip, increase your position.
Is Telsa a Growth or Value Stock?
According to Investopedia.com, a growth stock is any share in a company that is anticipated to grow at a rate significantly above the average growth for the market, and value stocks tend to trade at a lower price relative to their fundamentals such as dividends, earnings and sales.
Tesla is obviously not a value stock, it’s however a growth stock as Tesla is expected to grow sales and earnings at a faster rate than the EV market’s average.
As a result, Tesla is fundamentally overpriced, having a high P/E ratio and investors who use value investing techniques to analyze Tesla can’t make a ‘buy’ sense of its current valuation.
Applying value investing techniques to all stocks is a major reason why one of the greatest value investor, Warren Buffett, missed out on Apple and Amazon early on and is missing out on Tesla.
However, growth stocks like Tesla can produce dramatic declines and burn bullish investors badly. That notwithstanding, Tesla’s revenue and earnings growth trajectory, taking into account the pandemic blow, hasn’t even began flying in full force.
In the EV market alone, Tesla’s current EV supplies are a drop in the bucket in relation to EV potential demands worldwide.
The Electric carmaker has opened up a factory in China early this year, its building one in Germany and planning on building another in Texas. When all these factories alone start producing at full capacity, Tesla’s revenue and earnings could potentially fly in full force. And this is me just considering the EV market potential alone.
Moreover, ARK Invest CEO, Cathie Woods, said that she and her team of analyst views Tesla as an autonomous driving, battery and artificial intelligence company, tipping the stock price to hit $1,400 long-term. What Cathie said is more telling of what Tesla truly is as a company, than just viewing it as an electric car company.
Last month, I wrote an article where I noted that Telsa’s true competitors are autonomous driving companies like Waymo, not the Nikolas of the stock market. I got some sticks for making that assertion, but that’s going to be the fact 10 years from now.
As a long-term investor, I look at where a company is and where they are headed, and if Tesla is a growth stock (which it is), you don’t bet on it based on where it is alone but also on where it will be down the line.
Tesla: A Good Investment for the Long-term
If you’ve read this article to this point, you should be able to tell where I stand on this.
Tesla is a good investment especially for the long-term, although it could decline dramatically short-term, making it a high risk investment for the short-term. However, 5-10 years from now, buying and holding Tesla’s stock will make and not break you portfolio.
Conclusively, whether you love or hate Tesla, there’s no denying of the fact that the average passive investor who bought Tesla’s stock a year or two ago because they fell in love with Tesla’s why, not minding the fundamentals much, are seeing their portfolio having a fresh and long breath of outstanding returns.
If you want to buy Tesla’s stock, be ready for a long bumpy ride that will see your portfolio breath outstanding returns 5-10 years from now, otherwise pass on it and invest your money in some other stock you strongly believe in.
You mustn’t own a Tesla stock to make money from the stock market. Heck, Buffett still made good returns even though he missed out on Apple and Amazon early on.