Tesla Should Buy Back $15 Billion of TSLA Stock. Here’s Why.

  • Major Tesla (NASDAQ:TSLA) investor Leo Koguan is pushing for a share buyback
  • He sees it as a means of freeing up cash for company reinvestments
  • This could be the catalyst TSLA stock needs to start rising again
TSLA stock: Tesla Super Charging station on Stockdale Hwy and the 5 fwy. Tesla Supercharger stations allow Tesla cars to be fast-charged at the network within an hour.
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Tesla (NASDAQ:TSLA) is facing a difficult economic landscape, but one investor thinks he has the answer. Leo Koguan is a Chinese-American investor and business leader, who ranks as Tesla’s third-largest shareholder. The TSLA stock whale recently tweeted out a proposal for Tesla to engineer a stock buyback while prices are still down.

Let’s take a closer look at what this would mean for the company and the stock.

What’s Happening With TSLA Stock

Since the market selloff nearly two weeks ago, TSLA stock has been volatile. While things have stabilized on Wall Street since then, new problems have spurred plenty of turbulence for TSLA. The delaying of Elon Musk’s Twitter (NYSE:TWTR) acquisition helped shares temporarily rise, but multiple Wall Street analysts have slashed their TSLA stock price targets due to concerns regarding the company’s Shanghai operations. On top of that, a recent crash in California has prompted a regulatory probe into Tesla’s autopilot feature.

TSLA stock remains turbulent today. It began the day by rising but has since slipped back into the red. As of this writing, it is down 0.3% for the day. The stock needs a catalyst, and Koguan thinks a buyback would provide exactly that.

Behind the Buyback

Early this morning, Koguan tweeted at Martin Viecha, Tesla’s head of investor relations. In the tweet, he laid out a plan for the company to buy back shares in two stages:

From there, he outlined more reasons for the buyback and the areas the company should prioritize.

Koguan even provided a poll for Twitter users to weigh in, presumably to demonstrate community support for the idea. The poll is marked as “sensitive content” in the tweet below.

What Koguan proposes is a typical stock buyback. A buyback occurs when a company buys a large portion of its shares on the open market as a means of returning capital to shareholders. As Forbes notes, “The main reason companies buy back their own stock is to create value for their shareholders. In this case, value means a rising share price.”

The Bottom Line

It’s clear that Koguan did his homework. He sees TSLA stock as undervalued currently. The current dip is an opportune time for the company to buy back shares. More important is the potential for growth that he sees the buyback generating for Tesla. The company purchasing its own shares would boost the currently dipping prices. Therefore, it would generate more cash and reinvest that cash to scale production and refine technology.

Koguan’s point makes sense. Cash-rich companies often have high share prices, which can make a buyback seem risky. But TSLA stock’s current dip presents a rare opportunity for the company to buy back more shares before prices start to surge again. And as Koguan notes, Tesla’s cash flow is large enough to make such a buyback feasible. The company should listen to the whale and seize the opportunity to buy back TSLA stock at a low price.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2022/05/tesla-should-buy-back-15-billion-of-tsla-stock-heres-why/.

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