To short or not to short, that is the question for Tesla Inc (NASDAQ:TSLA). With TSLA stock having gained a whopping 57% year-to-date, this is a natural inquiry. The markets aren’t exactly experiencing a balanced rally. Over the past five years, TSLA stock has racked up 1100%, while its lifetime return is 1,650%. At some point, you’d think the hammer would be fall.
Of course, Tesla is a phenomenon unto itself. Like Apple Inc. (NASDAQ:AAPL), TSLA stock has its rabid fan base bravely willing to say some nasty things about analysts who dare be anything but bullish.
CEO Elon Musk is also quite the phenomenon himself. Not only is he a great innovator, he isn’t afraid to mix things up with the crowd. That only adds to the TSLA hype, and counters the naysayers.
Even here at InvestorPlace, opinions about Tesla are sharply divided. Contributor Tim Biggam believes that the TSLA rally “is about to run out of juice.” He acknowledges the extraordinary catalyst behind the shares, however: “With no earnings and a continuing appetite for burning cash, TSLA is the ultimate faith-based stock.”
On the other side of the fence is James Brumley. He went after Mr. Wonderful, celebrity investor Kevin O’Leary, for his worrywart thesis on Tesla stock. His main complaint? TSLA is a “cult stock.”
Mr. Brumley acknowledges this point, but counters that “one has to respect the psychological baggage that always comes with it. In this case, the underlying psychology is simple: Tesla isn’t going to roll over until nobody — nobody — expects it to.”
We’ve got quite a face off. But who’s right, and who’s wrong on TSLA stock?
Showdown on TSLA Stock
The traditionalist view has few nice things to say about the avant-garde automotive and technology company. As Mr. Biggam earlier alluded, the profitability picture for Tesla stock is horrible. If I didn’t know any better, I would assume that the firm is running a charity. Because of its carefree ways, TSLA has a distressed Altman Z-score (a formula for predicting bankruptcy).
But things aren’t all bad fundamentally. Tesla’s most standout attribute is sales growth. Over the past three years, the revenue growth rate hit over 42%, easily stomping the vast majority of the competition. Furthermore, in the first quarter, Tesla’s revenue per share nearly doubled on a year-over-year basis. Although this doesn’t completely mask over the money suck, it helps to justify the method to Elon Musk’s madness.
The bears will next counter that the automotive industry is a steaming pile due to sharply declining demand. Titans of the industry, including General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Toyota Motor Corp (ADR) (NYSE:TM), are struggling to gain traction.
At the same time, TSLA stock is no ordinary vehicular investment. If anything, its fleet of sexy, electric vehicles (EVs) is a disruptor to the old guard. While EVs are still very much in the minority, they’re gaining market share in the top three automotive markets of the U.S., Europe and Japan.
In addition, EVs attract the younger and upwardly mobile crowd. Within the top ten U.S. cities that have gone electric, most of them are from high-income earning locales, such as San Francisco or Los Angeles. So while the overall downturn in the industry is problematic, in theory, Tesla stock could weather the storm.
TSLA Stock Is Primed to Move Higher
That really leaves the technicals to sort out the mess. The cautious or bearish approach is well understood. TSLA stock has defied many analysts’ expectations, so they’re pulling back. Others may follow suit, thereby creating a mini-panic in the markets.
I must say, though, that the long-term picture of Tesla stock isn’t nearly as overbought as some might suggest. Based on its rally of 2013, and ensuing consolidation from 2014 to the end of 2016, TSLA may have formed a bullish flag formation. If this is indeed the case, then investors can expect more upside movements. Logically, it would also mean that bearish prognostications were way too early.
Admittedly, the bullish setup runs counter to how an organization should be run. But Tesla is hardly what you would call a normal company. To paraphrase Brumley, TSLA stock is what it is — not what you or I think it should be. To assume otherwise could be painful for your portfolio.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
