Tesla Motors (TSLA) stumbled as much as 2.2% soon after the opening bell yesterday, but whether TSLA stock was hit by a failure at CEO Elon Musk’s SpaceX business, a regulatory setback in Texas, or just the general market selloff from the Greece crisis … well, take your pick.
When it comes to TSLA moving dramatically for any reason on any day, it’s usually driven by emotion and fast-money traders. After all, TSLA stock is still so speculative at this point, any perceived change to the fundamentals is even more guesswork than usual.
Like most hot momentum stocks, TSLA doesn’t trade on anything resembling near-to-medium-term earnings, anyway. At this point, it’s all about accelerating revenue growth and pro forma profitability — a bet fueled as much by hope and hype as anything else.
And since hopes are so high for TSLA stock, it trades at an eye-watering valuation by a any number of measures.
Take boring, old projected profits. The market currently pays about 77 times forward earnings for TSLA stock — a price that only makes sense if Tesla generates a compound annual growth rate well in excess of that number.
Stocks priced that high are going to see a lot of neurotic trading action. When investors get this high-strung over a name, it doesn’t take much for then to stumble over a trip wire.
At Least TSLA Stock Is in Good Company
Just look at Amazon (AMZN) or Netflix (NFLX), which are very much known quantities compared to TSLA. Those stocks fetch premiums of 164 and 200 times forward earnings, respectively, and they have charts like rollercoasters. Indeed, AMZN has a 52-week range of $284 to $453. NFLX has bounced between $316 and $706. Extremely expensive stocks tend to be extremely volatile.
The latest act of the Greek debt crisis is hammering equities around the globe as investors shift assets into the so-called safety trade. Risky bets like TSLA stock fall out of favor as traders pour into more stable holdings like Treasury bonds.
That would be more than sufficient to spark a down day for TSLA, but the news flow gave traders a couple of other reasons to pull the rip cord.
SpaceX — another one of founder Elon Musk’s big adventures — saw one of its rockets suffered a launch-vehicle failure over the weekend. In plain English, it blew up, taking 400 pounds of supplies for the International Space Station with it.
TSLA and SpaceX are totally separate ventures, of course, but short-term trading doesn’t have to follow any kind of logical pattern.
In some much more material setbacks, Musk said Tesla owners weren’t using the battery-swap technology the company debuted a couple of years ago that helps the electric vehicles to take longer trips. Additionally, Tesla failed to get approval from the state of Texas to implement its direct-sales model. Strip out all the noise, and that kind of development can easily spark volatility in a name like TSLA.
Regardless, the thesis hasn’t changed on TSLA stock. It’s a high-risk, high-reward play that’s going to take a long time to sort itself out. If you’re bullish on Tesla, stay frosty. Bumpy days are just part of the course.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
