🎈 Up Big Today: Find today's biggest gainers with our free screenerTry Stock Screener

Tesla Stock: What the Bulls and the Bears Are Getting Wrong

Published 12/29/2022, 03:51 AM
GME
-
TSLA
-
AMC
-
  • Tesla stock continues to fall on many macroeconomic concerns, including production shutdowns in China and rising interest rates in the United States.
  • The push and pull between bulls and bears proves that a stock is worth exactly what investors are willing to pay.
  • Fundamentals work in favor of the bears, but the conviction may be on the bulls' side.
  • Tesla (NASDAQ:TSLA) is not bringing much holiday cheer to investors. In a shortened trading week, Tesla is one of MarketBeat's Most Active Stocks by dollar volume. But that volume is significantly lighter in a week like this than in a typical trading week. And it's heavily in favor of sellers.

    Nevertheless, according to Vanda Research senior strategist Viraj Patel,

    "Retail investors have bought more Tesla stock over the last six months than they have done overall in the 60 months before this (December)."

    So, who's right? The answer for bears lies in the fundamentals. But for bulls, the answer may lie in psychology.

    Fundamentals Continue to Signal Poor Q4 Earnings

    The bulls may be underestimating the fundamental picture for Tesla, which justifies a bearish outlook. Let's put to the side the number of shares (and billions of dollars) that founder and CEO Elon Musk has sold in recent months. Let's also not assign too much value to Musk's focus on Twitter. He'll be focused on Tesla soon enough.

    But what issues await him in 2023? First, the company is the leading electric vehicle manufacturer in China. And investors sold TSLA stock sharply over concerns about a production halt at Tesla's Shanghai plant. Plus, Tesla recently issued an incentive for U.S. consumers to receive a $7,500 discount for delivery before the end of 2022.

    That suggests the company is concerned about delivery numbers. You can add to the company's concerns about more competition in electric vehicles (EVs). And the icing on the cake is a weakening global economy with rising interest rates that make consumers less likely to "invest" in a vehicle that is still priced as a luxury.

    These concerns all point to the likelihood that Tesla will miss its quarterly earnings in January. The bears will argue that they are trying to get ahead of that negative earnings report by bringing down the still premium valuation for TSLA stock.

    Tesla Has Always Been Fueled by Emotion

    Tesla went public in 2010. This means that Tesla built out its EV infrastructure at a time of (mostly) lower interest rates and an economy that was (mostly) thriving. That helped to justify the stock's premium valuation even when the fundamentals suggested otherwise.

    The stock gained a loyal; some might say cult-like, following. The belief was in Musk. Tesla was seen as a technology company that happened to be in the electric vehicle (EV) business. It was an example of a stock worth whatever investors were willing to pay.

    If you bought and held TSLA stock for that entire time, you're sitting on a gain of over 7,000%. And even in the last five years, Tesla stock is up more than 450%.

    But markets tend to have a "what have you done for me lately?" outlook. And in the last year, TSLA stock is down over 68%. So so does the question become, who is doing the selling?

    The Key Word is Conviction

    This leads me to the point that the bears may be missing. For years retail investors have been burned by selling into a panic only to see the same stock climb sharply as institutional investors jumped in to snap up shares.

    I'm not referring to meme stocks such as GameStop (NYSE:GME) and AMC Entertainment Holdings (NYSE:AMC). Those companies have concerns regarding their fundamental business models. However, that's not the case with Tesla. Although the company faces a host of macroeconomic issues, the company is not going bankrupt.

    That's why I put Tesla on my list of five down but not out stocks. I did so because the sell-off in TSLA stock seems disproportionate to the company's revenue and earnings growth.

    Some things are working in Tesla's favor. First, the company's profit margin is nearly double the sector average. And even though the company is likely to slow down or even a decline in revenue and profits in the upcoming quarter, the five-year outlook still shows strong growth. Tesla is still miles ahead of many competitors when the economy becomes more favorable.

    That would suggest that TSLA stock's sell-off may be overdone. However, there's no doubt that bulls continue to swim against a current of higher interest rates and the near certainty of a recession. And if Tesla lowers its guidance in 2023, the stock may have further to fall, particularly if the investors who are selling were part of true believers.

    But, for now, retail investors are convinced about Tesla's long-term future. And if those bulls continue to have diamond hands, the bears may not get the result they're looking for.

    Original Post

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.