3 reasons Tesla will keep setting new highs

The stock is up 70% in the last year and isn't slowing down. But remember, this is still a volatile and risky pick.

By InvestorPlace Aug 12, 2014 2:05PM

File photo of a Tesla Model S outside the Tesla factory in Fremont, Calif. (© Paul Sakuma/AP)By Jeff Reeves


Tesla Motors (TSLA) hit a new record close on Monday, settling above $259 a share. That price was topped only by a previous intraday high of $265 set briefly during trading in February. Shares were down less than 1 percent on Tuesday.


When it comes to Tesla stock, it's always hard to put your finger directly on what's making shares move. But it seems like one of the big drivers (pardon the pun) for Tesla's most recent move was an upgrade from Deutsche Bank to "buy" with a price target of $310. That's up from a previous price target of $220.


It's actually kind of amusing, when you think about it, that Deutsche Bank never had a "buy" rating on Tesla stock to begin with. After all, this is one of the hottest stocks on Wall Street, with shares up 70 percent in the last year and about 680 percent since January 2013.


The upgrade is a bit overdue, but it's still in time to catch continued upside in Tesla.

Here's why investors should still be confident in buying Tesla stock, even at new all-time highs:


Sentiment: First and foremost, investors need to remember that momentum stocks like Tesla sometimes keep going up simply because they keep going up. When sentiment turns, it can indeed get nasty, but look at a chart of Tesla stock and you'll see we have not seen even a hint of that shift yet.


Sales are up: Sure, Tesla earnings missed the mark with a quarterly loss in its July report. However, investors are more focused on the sales trajectory for the stock -- and the company beat on revenue, delivered 17 percent more Model S sedans than the previous quarter and announced it broke ground on its "gigafactory" in Nevada to juice future sales.


Shorts give up: Short interest in Tesla stock (as of July 31) fell to its lowest level since October of last year. That shows that bears are betting against the stock less than they used to. While this reduces the potential for a big short squeeze and a one-day pop for the stock, it's also a sign that short sellers are tired of getting chewed up by Elon Musk and Tesla.


Bottom line

Any way you slice it, Tesla is going to be a volatile and risky stock to buy. After all, it's not as established as General Motors (GM) or Ford (F), and has only a fraction of the revenue.


Furthermore, as a luxury brand that is producing a consumer technology status symbol as much as an automobile, Tesla can't afford to see any brand tarnish. Consider the recent muted Consumer Reports review as just one risk to the big margins and big sex appeal of Tesla.


However, with a new electric SUV scheduled for next year and plenty of sales momentum at the present, it's hard to place too much stock in the bear case at this moment.


Who knows where Tesla will be in two years . . . but in two months, you can bet the stock will be higher.


More from InvestorPlace

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

Tags: FGMTSLA
1Comment
Aug 13, 2014 11:19AM
avatar

New report says sales are down in june and july.  2 straight months.  Proof that the GDP data was false and will be revised lower.

 

Sales were only 20% of what the govt estimated.  So hmmm, whats 20% of the 4 points the govt claims the gdp rose?

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