You’ll have to add Tesla (NASDAQ:TSLA) stock to the list of things like religion and politics that aren’t safe for discussion at the dinner table. Tesla stock has been on a record tear since turning a profit in the company’s third-quarter earnings report. This is causing bulls and bears alike to dig in their heels regarding the future direction of the stock.
Unfortunately, a spin around social media shows that opinions about the stock are somewhat decoupled from logic. The reality is that although both sides are making valid points, the truth is often rooted in words like belief and faith. And for those who don’t share your views, there’s no persuading them. That’s the way it has been with Tesla stock for a long time, and recent events help explain why.
Tesla Finally Appears to Be Delivering Cars
Tesla stock is defying all reasonable expectations. On Oct. 14, the stock “only” climbed about 2.5% to close at $537.92. In the last week, Tesla shares have climbed as much as 15%, largely based on news that the company had record fourth-quarter vehicle deliveries, though the stock was down in trading today.
My colleague Wayne Duggan summarized the meaning investors should place on Tesla’s numbers. The 112,000 vehicles beat analysts’ expectations by 6,000 units and represents a 15.4% increase from the third quarter. Added to prior numbers, this put the company’s total 2019 deliveries at 367,500.
Tesla has had an annoying habit of overpromising. So even though the number was on the low end of the company’s forecast, the fact that it actually hit its forecast has to be encouraging to Tesla enthusiasts. And all of this gives investors logical reasons to bid up the stock.
Is Tesla’s Stock Price Justified?
However, Tesla’s stock was already hitting record highs after its profitable earnings report. In fact, the stock is up over 100% in the last six months.
And realistically, the only reason for the stock’s meteoric rise comes down to … math says so. Investors keep buying. Short sellers keep losing. The fundamental arguments have not changed.
In fact, they may have become more entrenched. But when you have a mania, it’s all about feeling, not logic. The stock will continue to go up as long as there are investors willing to buy.
What’s Next for Tesla Stock?
I said Tesla stock isn’t safe for discussion at the dinner table, but I’ll venture this opinion before I take my casserole dish and go home. If you’re a buyer in Tesla right now, you’re gambling plain and simple — though I’m not saying you’ll certainly lose your bet. The only thing I can say is that Tesla stock will go up, until it doesn’t.
But Tesla could sell every single electric car that gets sold in 2020 and still might be overvalued at more than $500 per share. Remember, pigs get fat; hogs get slaughtered.
On the other hand, if you’re shorting Tesla stock, I contend you’re gambling as well. And how’s that working out for you? Tesla has a passionate base that is just as committed to their opinion as you are. And so far, they’re showing no sign of backing down.
Tesla stock will go down. And when it does, it could go down significantly. That’s not because it’s a bad company or because it makes a bad product. It will go down because that’s what stocks do. It could be because of a negative earnings surprise or further slowing in China or a geopolitical event we can’t possibly predict. Tesla is a hold for me.
As of this writing, Chris Markoch did not have a position in any of the aforementioned securities.
