By now, it should be well-known that Tesla Inc (NASDAQ:TSLA) is not for everybody. Tesla’s CEO, Elon Musk, is outspoken, TSLA stock is volatile and it trades detached from a valuation. TSLA pays no dividend and Tesla makes no money … yet somehow, it has amassed a market capitalization in excess of $50 billion.
But within all that chaos, Tesla has presented the market with a conundrum: Do you or don’t you believe? Despite all the naysayers and doubters, CEO Elon Musk has found a way to continue upping the stakes and delivering.
He built the luxurious Model S, which provided the funds and knowledge to build the Model X SUV. Together, both models laid the groundwork to rolling out the soon-to-be-produced Model 3. Clearly, Musk & Co. have their eyes on an even larger scale. The mass-produced SUV version — the Model Y — is reportedly on the table and Tesla also makes energy storage products as well.
This is where things gets tough. We believe in Musk and love the company, but TSLA stock is another story. It’s possible for investors to love the story and avoid the stock. The same way we may root on our favorite teams, but not own season tickets.
Potential Mishaps
For all the good that Tesla has done, there’s reason to have concern. For starters, it continues to lose plenty of money. Tesla had losses of $675 million last year and $330 million just last quarter. Acquiring SolarCity for $2.6 billion didn’t make that task any easier. Despite being a fraction of the size of Tesla, SolarCity burned through about the same amount of cash at the time the acquisition was announced.
Not everyone’s a believer. Analysts at Goldman Sachs — which has a “sell” rating and $190 price target on Tesla — UBS and Cowen have doubts over Model 3 production. Perhaps its biggest bull, Morgan Stanley’s Adam Jonas, is also changing his tune.
Jonas downgraded the stock to “equal weight” from “overweight” and maintained a price target just below current levels at $305. Jonas has concerns about competition from Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN), worries about China and has below-consensus Model 3 expectations.
His reasonings can be debated, but it’s clear that Wall Street is having second thoughts. Particularly when it comes to the stock price. TSLA stock is up a whopping 52% for the year and 45% over the past 12 months.
As we said at the top, Tesla isn’t tied to a valuation. It’s a story stock, and Musk tells one hell of a story. Solar roofs should debut later this year and Tesla’s got beautiful cars and energy storage solutions. Admittedly, it’s a great tale. And we’ve even taken a closer look at what its energy business can become.
It’s impossible to say whether TSLA is the next Amazon or Apple stock. But that’s what people are betting on. Aside from missing out on “the next great one,” I hope it gets there.
Trading TSLA Stock
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Despite the monster rally, TSLA stock’s relative strength index (orange circle) does not represent being overbought. That’s the good news. The bad news is that its MACD is falling (purple circle). In other words, momentum is waning.
As the Model 3 hype continues to build, shares may continue to rise. The teal line — admittedly, a strange way to draw support — has held up. That next support level should come in around $300. Tesla is a momentum stock. When it’s hot, the rallies will last longer than many think. When it cools though, look out.
Traders can wait for pullbacks to key moving averages (21-day, 50-day, etc.) and try for quick buys. If they’re wrong, they should get out fast. If they’re right though, the trades should start working almost instantly.
The last caveat is for long-term investors. Sometimes investors want to believe in a great story like Tesla, but don’t want to be caught up in the mania. The best bet here is to wait for the stock to decline aggressively. Be it a market-wide selloff or even Tesla specific, (or some combination of both).
When the stock’s down big — say 40% — that’s the time to step in if you want to be a part of it. For profit-takers, I would say now’s as good of time as any to take some gains off the table. Then again, I don’t have any gains in Tesla, so who am I to say.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held no positions in any security mentioned.
