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Tesla: Where Retail Investors Rushing in and Nest Eggs Cracking
9/29/2013 12:41:00 AM
Every year there seems to be a few momentum stocks defying logic, reality while bleeding all shorts getting in the way. This year, Tesla Motor (Nasdaq: TSLA) is one such stock which hit $188.64 on Friday, Sept. 26.
We are talking about a $35ish stock just on Jan. 2, 2013, and the company only reported its FIRST EVER profitable quarter in May. Goldman Sachs (GS) did do a reality check on Tesla's margin in July, and the stock did go down by $18.21 in one day on July 15. However, a forgiving market with crazy liquidity (thanks to Fed's infinite QE), investors just blew GS off and the stock's never looked back.
Now the latest Tesla warning came from BofA Merrill Lynch dated Sept. 23 -- Smart-money big boys are getting out of Tesla, and guess who are the buyers...Retail Investors!
More importantly, BofA Merrill Lynch thinks Tesla price objective (PO) should be at $45! (That's 76% lower than the closing price on Friday.)
The reason for such pessimistic view on Tesla going against the market herd? BofA noted:
In other words, the current valuation might remotely be reasonable if Tesla were the only game in town without the competition from GM, Toyota and BMWs.
Fundamentally, I can see why even a typical bull like GS would have concern -- TTM financial ratios related to profitability and margins of Tesla are ALL NEGATIVE or meaningless since 2008! (See Screen Shot from S&P Capital IQ)
Some analysts argued that Tesla requires an unconventional approach to valuation due to Tesla's special 'advantages'. However, I think the current price point of Tesla stock is unlikely to be justified by any reasonable and logical model, however unconventional it needs to be. And it looks like a lot of the institution smart money investors agreed and have already cashed out judging from the BofA analysis.
Approaching it from a common sense point of view, Tesla is already exhibiting signs of a bubble when you see quotes like this:
And when Tesla’s chief designer, Franz von Holzhausen, pulled out the Apple and 'iPhone Moment' card when he tried to explain why the car has a touchscreen:
My take is that it seems a pretty smooth move implying Tesla, essentially an auto maker in the manufacturing sector, is a 'peer' of Apple, an international icon tech company.
The Christian Science Monitor (CSM) just published an interesting article questioning how Tesla could be worth almost half (46%) of General Motors in terms of market cap. This caught my eyes because typically CSM is not a site where you find articles talking about stock valuation. As such, CSM did not cite the financial lingos such as forward PE, etc, but rather based it purely on the fact that
A lot of times, the most basic question is usually the most important one that retail investors should ask before getting into Tesla.