I am calling for Tesla (TSLA - Free Report) to reach $450 within a year from now. That is not a typo, it is fully $125 ahead of the highest price target on the street. Dougherty’s Charlie Anderson put a price target of $375 on the stock back on 2/23/17 when he reiterated his buy rating.
My call for such a big move in the stock comes from a solid foundation. The most important part of the foundation is the reason investors put their money into a stock – they expect the value of the company to rise.
There are dozens upon dozens of ways to value a company. When you boil it down there are two basic methods… growth or value. If you are a value investor you can probably stop right here as you focus on the past performance and want to see some sort of “distress” from which an investment can come back from.
On the other hand, if you are a growth investor, then I have something that will help your case. The best type of growth is sequential, and that is just what we expect to see from TSLA over the next year:
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Is That Growth Enough?
Lately we have seen a few analysts talk about TSLA and do so in some rather strange terms. Last week we had the Barclays analyst who has been bearish on the stock for year reiterate a sell rating and a $165 price target. The report talked about a red pill / blue pill scenario in which you either except the idea of “valuations” or you live in a world where infinite growth is possible. The analyst noted that “we don’t think 1Q EPS will matter, and while Model 3 hype is baked in, it could drive another leg up.”
When you have one of the most bearish analysts in the name suggesting another leg up will come with earnings you have to wonder how much more the bears can withstand. The answer is a lot.
TSLA has a lot of “naysayers” and it is not something new. I was looking at the short interest as reported on the NASDAQ site and then compared it to the stock price. I charted the shares sold short and the price of TSLA at the close on the corresponding day.
This chart shows me a rather important part of why I think TSLA goes to $450 and beyond. As the share price moved higher from November 1 through the end of January the shorts were hammered, but they added to their positions.
The first meaningful decrease in the short position happened in mid February. It took the 1Q delivery numbers for TSLA to send the stock over $300 per share, but if you have been looking at social media at all, you have to get the feeling that the shorts are now pressing their bets.
The main talking point that the shorts stick to is the valuation of the company. Let’s just address that one head on to see what they are talking about. I will start with the standard metrics:
No earnings for TSLA means that we can’t really value them on trailing or forward multiple. GM and F both have some paltry numbers in terms of earnings multiples especially when looking at the industry average.
But the market is kind of funny when it comes to how it looks at growth. It really likes company’s that grow revenue and earnings. Let’s take a look at another chart and then think a bit more about why the valuations are what they are.
Seems that this year is going to be pretty good for TSLA and the other two… well not so much. Next year looks like earnings will take a big step forward for TSLA while there is going to be a broader move higher according the analyst reports.
Recent Attack On The Board
I giggled a little when I saw a recent article that talked about how investors want more board members with fewer ties to Elon Musk. I know it is not everyday that the CEO has his brother on the board, so I get that argument, but it really starts and stops there.
Whenever there is talk about increased corporate governance, we always hear about the steps that Cal (PERS) and Cal State Teachers Retirement System (STRS) are taking. Yes, these are big investment funds and you would think they would be looking to support the companies in their own back yard – but you would be wrong. Like any investor, they don’t care too much about the location of a company, they care about the returns they get from it. Yet, those names popped up in recent discussion.
I took at look to see where this big time investors ranked in terms of TSLA shareholders. I scrolled through 3 screens find Cal PERS which owned 308K (a decrease of 8.6K shares from the last report) shares and STRS which had 259K shares ( a nearly 7K decrease from the last report).
Seems they have a very small position to get this much press about the board. Their position seems tiny compared to that of Fidelity at 22M shares or T Rowe Price at 11M shares or even the recent investment by Tencent of 8M shares.
The Board is Elon Musk… and for good reason. He is the biggest shareholder and get this, he is buying not selling!
According to Finviz, Musk holds about 33.6M shares, making him the single largest shareholder by a wide margin. Musk recently added to his position in a secondary offering, buying $25M worth of stock at $262.
I searched around several sites, and found that few accounted for Musk’s huge position. This site show that insiders own less that 1% which makes you wonder if we have to fact check everything for ourselves.
But the question remains, will there be a new board member? Could this whole thing be a scheme from Musk himself to make it appear as though an investor wants some more independent representation on the board only to have an announcement all lined up? That would be very unlike Musk, or would it?
Tsunami of Hurt
I have a history with this stock… I first recommended it to investors of Zacks Home Run Investor back in 2013 when it was trading around $38. I talked about the stock in a video shortly before it was added to the service. The concept was that there was going to be a huge increase in reported revenue and investors were about to see some “sticker shock” albeit, the good kind.
Not long before that video was shot, Elon Musk warned investors that “tsunami of hurt” was in store for those who were short… and believe me, there were plenty of them. One year after that warning shares were up more than 400%.
More recently there was another warning. Make that two warnings. First was the April 3 tweet of “Stormy weather in Shortville …” and then a direct response shown here:
I mention this because after that first report with big sales numbers there was a series of announcements that lifted the stock from $40 to $90 then to $120 and before long we were testing $200 at $190 a share before a pull back sent prices back below $130. This would be that last time the stock traded below $130.
Doomed To Repeat It
Bob Lutz said that those that those who don’t learn from history are doomed to repeat it. Well at least I think he did. OK, let’s put it this way, it is a common saying and Bob probably said it at one point. What he did say on CNBC on 4/12/17 was that TSLA was “doomed.”
So let me lay it out for Bob and some other bears. A new model, that when made available for pre order saw more than 100K in the first 48 hours, is going to be delivered this year. About a year ago Musk noted that there are over 400K orders. The demand is real … and we could get more color on that in the next earnings release.
There could be another “series” of announcements from Musk who has been called a “Svengali of the stock market.” The shorts are feeling the pain, but seemingly continue to reload as their thesis of a crazy valuation continues to carry the day.
Right now the stock is around $300 – but if Musk’s warnings are anything like before, a run to $450 and beyond could only be the beginning.
Don't Forget to Watch This Video from Dave Bartosiak: Tesla Success Hinges On Model 3
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