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Elon Musk’s Broken Promises Make Tesla Stock a Sell

Investors should sell TSLA because of Musk's words and actions

Tesla (NASDAQ:TSLA) stock has become one of the most intriguing equities. CEO Elon Musk has done what many thought impossible. He has built a successful car company, and he has made electric vehicles (EVs) a viable alternative to gasoline-powered vehicles. Moreover, Tesla’s  positive earnings report and its launch of a pickup truck have helped Tesla stock recover in recent months.

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However, Musk has also broken promises and has been charged with fraud by the Securities and Exchange Commission (SEC). Given the recent rally of Tesla stock, I think Musk’s idiosyncrasies will more than likely weigh on the equity at its current level.

Elon Musk Brings Genius, Uncertainty to TSLA Stock

In a previous article, I called Tesla stock a buy because its high growth exceeded its elevated valuation. However, I also urged  investors to be cautious about the shares,  since the eccentric behavior of Musk often trumps his company’s impressive accomplishments.

However, traders have chosen to ignore Musk’s quirks for now. Tesla stock surged following its surprising third-quarter profit. As a result, TSLA stock again surpassed the $335 per share level.

Secondly, investors also seemingly ignored the embarrassment that  Musk and TSLA suffered after the cybertruck’s so-called “bulletproof” glass shattered during a demonstration of its alleged strength. Tesla stock fell below the $350 per share level following the test. However, the shares stabilized after Musk tweeted that customers had pre-ordered 200,000 cybertrucks.

I think the design of the cybertruck is strange. I also find it odd that 200,000 consumers, seemingly ignoring the failed window test, pre-ordered the pickup.

Nonetheless, traders have bid Tesla stock much higher. As a result, its $60 billion-plus market cap exceeds that of GM (NYSE:GM), Ford (NYSE:F), and Fiat Chrysler (NYSE:FCAU).

After  that rally, Tesla stock trades at a forward price-earnings ratio of 63.3. Although its profit growth has been somewhat volatile, analysts, on average, expect its earnings to climb by an average of 114% per year over the next five years. As a result,  its price-to-earnings-to-growth (PEG) ratio is 0.58. making TSLA  stock appear to be attractive.

Investors Should Price Elon Musk Into TSLA

However, I still cannot shake my misgivings about Elon Musk. InvestorPlace columnist Dana Blankenhorn correctly pointed to the “maybes” surrounding Tesla Solar Roof and its Gigafactory in Berlin, as well as the company’s promises that have not been kept. Those unkept promises  led a New York Post columnist  to accuse Elon Musk of being a “total fraud.”

Though I understand that argument, I do not agree with it. I think Elon Musk is more detached from reality than fraudulent. But he’s also an inventive genius. We should remember that he has started a successful new car company. For decades, many thought this feat was impossible, and hundreds of car companies failed.However, reality has confronted Musk on many occasions, with the shattered glass serving as the latest example.

Investors have chosen to ignore Musk’s issues for now. However, his failures have added to the uncertainty surrounding Tesla stock. With TSLA again approaching its 52-week highs, I would pass on the shares.

Final Thoughts on Tesla Stock

The recent gains of Tesla stock could quickly evaporate amid the continuing uncertainty created by Musk.

Elon Musk has brought both positives and negatives to Tesla stock. The man who made battery power and a new car company successful has also spooked investors and the SEC with his erratic behavior. A long list of broken promises has sometimes led to questions about his integrity.

Musk’s positives may well outweigh his negatives. However, in the face of the uncertainty his broken promises have created, investors should not pay a premium price for Tesla stock. With TSLA stock trading just above $330 per share, I do not think traders have factored in that uncertainty.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.


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