Stock Market News – Is Tesla a “buy” once fundamentals take center stage?
September 25, 2018 1:26 pm
A “going private” tweet by CEO Elon Musk and a series of senior executive departures within the span of a few weeks have been weighing on Tesla’s stock and keeping the company in the news. Once the dust settles though and the fundamentals become the primary driver of the corporation’s shares, one has to ponder whether the recent depreciation provides an opportunity to buy.
“Am [sic] considering taking Tesla private at $420. Funding secured.” This is the now “famous” (maybe notorious?) tweet by Musk that was met with a short-lived surge in the electric car maker’s stock price to eye the all-time high of $389.61 before the shares sold off heavily. Specifically, they are trading lower by 21.2% ever since the comment was made.
As it turned out, funding had not been secured. Consequently, the remarks have sparked lawsuits from investors, a regulatory investigation by the US Securities and Exchange Commission and a criminal inquiry by the Department of Justice. All these, on the ground of potential market manipulation and securities fraud. On top of this, a wave of top execs – including the Chief Accounting Officer – recently leaving or announcing their departure from the company has added to negative sentiment, acting as a drag on Tesla’s share price. For the record, the firm announced several promotions to make up for the departures, while take-private plans have been abandoned, at least for now. Furthermore, a recent video interview of Elon Musk during which he appeared to smoke marijuana, also caused some controversy. It should be noted that Musk did nothing illegal, as smoking marijuana is legal in the state where the interview took place.
Moving forward, the million-dollar question is: Once this predominantly public relations crisis is over and the fundamentals take center stage, effectively dictating Tesla’s stock direction, are the shares a “buy”? The answer is “Yes”… given that positive momentum from the latest earnings report is maintained. In other words, before arriving at an answer to the previously posed question, some assumptions need to be made.
The early August earnings report for Q2 2018 was met with a jump in Tesla’s stock, which finished the day higher by a whopping 16.2% (see chart below). This came on the back of a dramatic improvement in the firm’s results. Particularly, the vehicle maker was seen as delivering on two sticking points. Namely, it managed to ease concerns over its cash-burn rate, as well as alleviate worries on production issues having to do with Model 3, which is intended for mass-market adoption.
Technically, the stock seems to have stabilized after a previous attempt to recover from a five-month low of $252.25 hit on September 7. This is also evidenced by the RSI which has leveled off around the 50 neutral-perceived mark, pointing to the absence of direction in the short-term. In terms of the medium-term picture, it is looking mostly negative at the moment, with trading taking place below the 50- and 200-day moving average lines.
A decisive move above the 38.2% Fibonacci retracement level of the upleg from $244.59 to $387.46 at $299.07 – which would also translate as a break of the $300 round figure – may meet resistance around the 50% Fibonacci mark at $315.94. The zone around this encapsulates the current levels of the 50- and 200-day moving average lines at $312.80 and $316.81 respectively. On the downside, support could occur around the 23.6% Fibonacci level at $278.19, before the attention turns to early September’s five-month low of $252.25 in the event of steeper losses.
The car-maker is a Nasdaq 100 constituent stock. Year-to-date, it is trading lower by 3.75%, which negatively compares to the benchmark’s +18.0%. Wall Street analysts’ consensus recommendation on the stock is “hold”, with a mean target price of $315.90.
A “going private” tweet by CEO Elon Musk and a series of senior executive departures within the span of a few weeks have been weighing on Tesla’s stock and keeping the company in the news. Once the dust settles though and the fundamentals become the primary driver of the corporation’s shares, one has to ponder whether the recent depreciation provides an opportunity to buy.
“Am [sic] considering taking Tesla private at $420. Funding secured.” This is the now “famous” (maybe notorious?) tweet by Musk that was met with a short-lived surge in the electric car maker’s stock price to eye the all-time high of $389.61 before the shares sold off heavily. Specifically, they are trading lower by 21.2% ever since the comment was made.
As it turned out, funding had not been secured. Consequently, the remarks have sparked lawsuits from investors, a regulatory investigation by the US Securities and Exchange Commission and a criminal inquiry by the Department of Justice. All these, on the ground of potential market manipulation and securities fraud. On top of this, a wave of top execs – including the Chief Accounting Officer – recently leaving or announcing their departure from the company has added to negative sentiment, acting as a drag on Tesla’s share price. For the record, the firm announced several promotions to make up for the departures, while take-private plans have been abandoned, at least for now. Furthermore, a recent video interview of Elon Musk during which he appeared to smoke marijuana, also caused some controversy. It should be noted that Musk did nothing illegal, as smoking marijuana is legal in the state where the interview took place.
Moving forward, the million-dollar question is: Once this predominantly public relations crisis is over and the fundamentals take center stage, effectively dictating Tesla’s stock direction, are the shares a “buy”? The answer is “Yes”… given that positive momentum from the latest earnings report is maintained. In other words, before arriving at an answer to the previously posed question, some assumptions need to be made.
The early August earnings report for Q2 2018 was met with a jump in Tesla’s stock, which finished the day higher by a whopping 16.2% (see chart below). This came on the back of a dramatic improvement in the firm’s results. Particularly, the vehicle maker was seen as delivering on two sticking points. Namely, it managed to ease concerns over its cash-burn rate, as well as alleviate worries on production issues having to do with Model 3, which is intended for mass-market adoption.
Technically, the stock seems to have stabilized after a previous attempt to recover from a five-month low of $252.25 hit on September 7. This is also evidenced by the RSI which has leveled off around the 50 neutral-perceived mark, pointing to the absence of direction in the short-term. In terms of the medium-term picture, it is looking mostly negative at the moment, with trading taking place below the 50- and 200-day moving average lines.
A decisive move above the 38.2% Fibonacci retracement level of the upleg from $244.59 to $387.46 at $299.07 – which would also translate as a break of the $300 round figure – may meet resistance around the 50% Fibonacci mark at $315.94. The zone around this encapsulates the current levels of the 50- and 200-day moving average lines at $312.80 and $316.81 respectively. On the downside, support could occur around the 23.6% Fibonacci level at $278.19, before the attention turns to early September’s five-month low of $252.25 in the event of steeper losses.
The car-maker is a Nasdaq 100 constituent stock. Year-to-date, it is trading lower by 3.75%, which negatively compares to the benchmark’s +18.0%. Wall Street analysts’ consensus recommendation on the stock is “hold”, with a mean target price of $315.90.
Related Posts: