Tesla's run may be stalling out
Shares of the electric automaker have had an incredible year. It may be time to take profits, though.
Shares of Tesla Motors (TSLA) have had an incredible performance this year, gaining 374.5% year-to-date. Part of that is due to improving fundamentals, incredible showmanship from CEO Elon Musk, Tesla's ability to disrupt the automotive market as a whole, and an incredible short squeeze this year.
However, as Tesla matures, it will start to trade more on fundamentals and less on momentum and cultish behavior, and that moment may be approaching sooner than expected.
When Tesla issued convertible debt to help pay off its Department of Energy loan earlier this year, the convertible debt (sec.gov) becomes convertible at $184 a share, some $25 away from where the stock is trading.
While Tesla's run is no doubt incredibly impressive, annual moves of more than 400% are outliers, not the norm, no matter how impressive the company might be.
In Tesla's second quarter (TheStreet), revenue was $405 million, impressive for a small automaker, much less one credited with changing the industry. The Model S, of which Tesla delivered 5,150 units in the second quarter, continues to be a hit with consumers, the media, and analysts. Having personally driven the car, I can say it is the best driving experience I've ever had.
Last week, NYU professor Aswath Damodaran put out a valuation piece on his blog, saying he got an estimated fair value price of $67.12, prompting much debate on social media. Professor Damodaran's piece was questioned as he looked at the Palo Alto, Calif., Tesla purely as an automotive company, and not one that disrupts other industries, including batteries and power train systems.
Tesla, which gets a portion of its revenue from selling power trains to Toyota Motors (TM) and Mercedes, has the potential to disrupt those other markets, but for now the company's main focus is on improving and innovating in the automotive market.
Even CEO Musk, who in addition to running Tesla, also runs SpaceX, has said that Tesla's valuation is generous (cnbc.com). Tesla is being valued right now not as a technology company or an automotive company, but rather a disruptor to the market it is in. Disruptor companies, like Amazon.com (AMZN) and Netflix (NFLX), are afforded higher earnings multiples as they continue to move into new areas (Amazon with AWS, groceries, software) or out-innovate existing players (Netflix releasing originals all at once), but eventually that run will end.
Tesla still has a long way to go toward disrupting the automotive market, and investors, including Jeffrey Gundlach (TheStreet), are "scared to short it" for fear it will go sharply higher. However, the $184 conversion price on the debt is a level at which investors may want to consider taking profits and reevaluating their positions in the name.
More from TheStreet.com
Technology from Tesla is NOT disruptive in any way, shape or form to the global automobile industry! Wait until you see a "blow off top" in which the opening price for the stock gaps up $10 to $15 and THEN hit it on the SHORT SIDE! It's highly unlikely the stock is even worth $6 or $7 let alone $67 as the professor cites.
Didn't we hear similar "stories" in early 2000 about internet companies just before the NASDAQ crash? Remember Pets.com selling kitty litter online for less than their cost of shipping? The same "fools" are now buying into this "story". Be assured that any small competitive advantage for TSLA will be quickly erased as other highly capitalized automakers purchase and "reverse engineer" its vehicles.
Now if one could plug a Tesla in for a minute and then drive 400 miles THAT would be disruptive IF TSLA had patents to a technology like that. But they don't. So......SHORT THIS ONE TO ZERO after the "blow off" top.... coming soon to a TSLA stock chart near you!
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