As much as I love writing about Tesla (NASDAQ:TSLA), I didn’t want to write this article about TSLA stock. I really didn’t.
But Tesla traded down $5 when SpaceX initially canceled its Falcon 5 launch last Friday. When SpaceX successfully completed its launch over the weekend, Tesla shares traded higher by 7.2% on Monday.
It pains me to have to get into this, but I will. Here’s what TSLA stock investors need to know about SpaceX.
Tesla and SpaceX Are Different Companies
Tesla and SpaceX are two different companies. It’s like how apples and oranges are two different fruits. A better metaphor might be Square (NYSE:SQ) and Twitter (NYSE:TWTR).
Square and Twitter are two different companies that have the same CEO, Jack Dorsey. When Square reports an earnings miss, Twitter’s stock doesn’t also drop. Because, and I can’t emphasize this enough, Twitter and Square are two different companies.
I’m not the only one to find this Tesla-SpaceX trade utterly absurd. Stanphyl Capital’s Mark Spiegel tweeted about the trading action in TSLA stock over the weekend.
“Wow, $TSLA traded down $5 on the launch postponement– there are actually dummies who bought the stock today based on that completely unrelated event… Amazing!”
Tigress Financial analyst Ivan Feinseth says he is bullish on Tesla stock, but it has nothing to do with SpaceX.
“I can’t see any correlation other than that they are run by the same guy,” Feinseth says.
The only argument that makes any kind of sense is the one put forth by Wedbush analyst Daniel Ives. Ives says success by SpaceX reflects positively on Tesla CEO Elon Musk’s brand.
“While SpaceX and Tesla are separate companies despite some R&D cross-pollination in some key areas, from a consumer perspective the Musk DNA remains the linchpin to both of these next-generation technology stalwarts and we would characterize the historic success of SpaceX as another major shot in the arm to the Tesla brand,” Ives says.
TSLA Stock Is a Story Stock
I always like to rely on numbers and facts when analyzing stocks. Facts are the only thing that investors can fully rely on. The fact that Tesla’s valuation has always been absurdly high relative to its financial numbers is the reason I’ve never touched the stock.
TSLA stock is a story stock, which means it trades based on how people feel about the company and Elon Musk rather than facts. Obviously those feelings have propelled the stock higher and higher over the years. But feelings and stories can change very quickly, and story stocks are always very dangerous.
At some point, whether it be a month, a year, or 10 years from now, Tesla will have to actually put up the numbers to back up the story, or the story will be forced to change.
But for now, I want to highlight two things about the Tesla story that have improved in the past month. First, Musk’s defiance of California politicians in opening the Fremont plant back up early drew praise from a contingency of conservative Americans.
Musk has always been a champion of science, technology and clean energy, which is why he has a cult following among younger, idealistic investors.
In fact, Tesla investors have such loyalty to Musk that the stock’s share price is up significantly even since Musk himself said Tesla’s share price was “too high imo” about a month ago.
Musk Is (Supposedly) Leaving Twitter
The other bullish development in the Tesla story is that Musk has said he is taking a break from Twitter. I doubt this break will last for very long given how much he seems to enjoy trolling the Twitterverse, but Tesla followers see him as a real-life Tony Stark. In a vacuum, that’s how they will continue to see him.
It’s only when he gets on Twitter and makes fraudulent claims about Tesla buyouts, or predicts “close to zero” new U.S. coronavirus cases by the end of April or accuses a rescue diver of being a “pedo guy” that he forces his loyalists to bend over backward to maintain their image of him as Iron Man.
How to Play TSLA Stock
I’ve said repeatedly the only way to play TSLA stock is to stay away. It’s nuts that a SpaceX launch would cause this much reaction in Tesla shares, but honestly, it doesn’t surprise me. If TSLA stock went to $15,000 in the next month, that wouldn’t surprise me. If it went to $150 in the next month, that wouldn’t surprise me.
Much like the price of bitcoin, the value of a share of TSLA stock is tied only to the story the shareholders believe about the company and its CEO. If it were valued like other big tech stocks, it would be priced at $400 or $500. If it were valued as an auto stock, it would be priced at $40 or $50.
Tesla is a cult stock with a cult valuation. If you’re gambling on it long or short, good luck. You’re going to need it.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan does not hold a position in any of the aforementioned securities.
