Tesla (TSLA) pulled back more than 5% Tuesday after an analyst downgraded the stock, but anyone who has held TSLA for more than a few months may be forgiven for saying, “wake me when it’s over.”
Analysts at Swiss investment bank UBS cut TSLA to “sell” from “neutral,” citing “misleading” figures Tesla issued regarding its home battery business.
Here’s a relevant passage from the note UBS issued to clients:
“Tesla received over $800m in ‘orders’… in the first 5 days of announcing the Powerwall/Powerpack; however, this pace is misleading as customers did not put down deposits, so these are just solicitations of interest. More importantly, early adopters (‘green’ consumers) likely are driving up initial orders, but once these orders are filled, making the mass market leap will likely be difficult given the challenging economics.”
Additionally, UBS is worried that the Tesla stock price is too high because of an overly optimistic view of costs for the company’s Model X and Model 3.
It’s not a bad argument. It’s just that it doesn’t really matter when a stock trades like TSLA. As we’ve written time and time again, if you believe in Tesla stock, it’s pretty much an “in for a penny, in for a pound” holding.
Swinging for the Fences With Tesla Stock
TSLA is a red-hot momentum stock. It has never traded on forward earnings or other common measures of valuation. Rather, it trades on hope and hype because of its revolutionary potential.
Tesla Motors has reanimated the market for electric vehicles at pretty much the perfect time, with sustainable energy and climate change bubbling to the forefront of the public’s collective mind.
Shares probably get a bit of a “genius” premium because of the wildly successful track record of founder and CEO Elon Musk.
By a number of metrics, Tesla stock was overpriced before the latest drop and it’s still overpriced at current levels. Since when does valuation matter? The allure of getting in on the ground floor for theoretically stratospheric returns is too much for many retail and professional investors to ignore.
True, it’s absolutely possible that UBS is correct, but good luck waiting for Tesla stock to come down to an attractive entry point by valuation metrics like forward earnings. TSLA is either a grand slam or a strikeout looking.
When it comes to TSLA moving dramatically for any reason on any day, emotion and fast-money traders usually drive it. After all, Tesla stock is still so speculative that concern about the fundamentals is even more guesswork than usual.
TSLA is still up about 20% for the year-to-date; reclaiming much of the ground it lost after peaking out in September, back when Musk said Tesla stock might be “kind of high.”
Tesla is a high-risk holding. Value investors need not apply. Factor in Tesla’s own standards of volatility and this latest dive barely rates a bead of sweat on the brows of hardened TSLA investors.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
