Just a little less than two weeks ago, I pointed out that Tesla Inc (NASDAQ:TSLA) was in a better position for a breakout than it had been in years. If Tesla stock was going to work its way out of an annoying sideways rut, this was an opportunity its fans and followers couldn’t afford to ignore.
It looks like traders saw the same last week, and believed it enough to buy into it. TSLA has not only cleared the ceiling at $287 — it has followed through quite nicely without yet looking back. It looks like that old range between $179 and $287 really is in the rear-view mirror.
What I didn’t say then — just because of time and room constraints — was now that the stock’s no longer shackled, it becomes infinitely easier for analysts to dish out new (or more) bullish opinions on Tesla stock. We saw what could become a string of upgrades on Monday morning … even if it a strangely-worded bullish thesis.
The Ball Is Rolling
First things first.
The chart of Tesla shares below largely speaks for itself. That is, since early 2014, TSLA has bounced around between $179 and $287. A minor floor at $195 also played an occasional role. Last week, though, with some help, Tesla stock finally pushed its way above a ceiling that had quelled a rally three different times over the prior two years.
The looming advent of the Model 3 and enthusiasm surrounding the new Model Y get most of the credit for the bullish thrust.
It matters more than you might think.
As much as they’d like for you to believe otherwise, Wall Street’s analysts watch charts as much as anybody else does, if not more so. There’s nothing more damaging to their careers than deeming a stock a “buy” that doesn’t move higher, or calling a particular stock a “sell” that doesn’t move lower. If nothing else, a stock’s chart trajectory helps the pros determine what’s in store for a particular name.
With that as the backdrop, last week’s breakout move from TSLA stock just made it considerably easier for an already-bullish analyst community to raise their opinions on the electric vehicle and solar panel maker.
Piper Jaffray was one of the first to pull the trigger, even if apologetically so.
An Un-Upgrade on TSLA, But Whatever
At first glance, Piper Jaffray’s upgrade from “Neutral” to “Buy” and the raised price target for Tesla stock from $223 to $368 seems like a fairly typical shift in sentiment. It was analyst Alexander Potter’s explanation that left the market wondering if they should heed his advice. He noted:
“Admittedly, before investors can follow our advice and buy TSLA shares, they will need to employ a “creative” valuation methodology and prepare for a bumpy ride.”
Creative valuation? It gets better. Potter went on to say:
“We sympathize with bears – but their (arguably rational) arguments probably won’t matter. In many ways, TSLA seems to play by its own rules. The company burns through cash at a rate that better-established companies would likely be crucified for … Tesla’s production timelines are unreasonably fast. … Yet, because of its superior products, loyal shareholders, and inspiring mission, TSLA remains unscathed.”
To a new investor looking for a results-driven valuation, it’s a maddening lack of results-based opinion. But trading veterans have a pretty good idea of what he means.
While most stocks are driven by the underlying company’s balance sheet and income statement, a handful of stocks — “story” stocks — are largely a bet on future sentiment regarding that company’s basic premise.
Amazon.com, Inc. (NASDAQ:AMZN) is one of those names.
I’ve said it before, but it merits repeating now: AMZN shares are supported almost entirely on the notion that it’s so pervasive because it’s woefully profitable. The average consumer/investor loves the idea of being able to buy anything and everything at the push of a button, and have it in their hands within a couple of days (if not sooner). The premise is more than enough to obscure the poor net margins Amazon habitually produces.
Ditto for TSLA stock. Tesla burns through money like nobody’s business and has a habit of overpromising and underdelivering. But it just doesn’t matter. Electric cars are the future, and CEO Elon Musk makes them cool, not just EVs that look like go-carts.
For Potter — and soon, I suspect, others — the premise is enough now that the stock’s unstuck.
Bottom Line for TSLA Stock
It is what it is. Tesla stock may not be a great fit for grandma’s retirement portfolio, but for investors that understand some stocks are more of a psychological chess match than an investment, TSLA can play a respectable role.
Potter even goes on to say so without really saying so, commenting “[the company’s products] have a captivating impact on consumers and shareholders alike; this advantage will be difficult to replicate.”
Don’t overthink this one. Just go with the flow. More upgrades are apt to be on the way now that Piper Jaffrey stuck its neck out.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
