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ValuEngine

About the Author ValuEngine

ValuEngine.com (VE) is a stock valuation and forecasting service founded by Ivy League finance academics. VE utilizes the most advanced quantitative techniques and analysis available. Our research team continues to develop, test, and improve the VE Stock Valuation Models and econometric models for forecasting stock price movement. In recent years, VE has expanded its research program to include portfolio construction and tracking products. Our primary products are this website for individual investors and ValuEngine Institutional (VEI), a software package for equity fund managers and other financial professionals.

Tesla (TSLA) Stock Is Ready to Take a Fall


By Steve Hach

We have been tracking Tesla (NASDAQ:TSLA) for a while here. As long-time readers know, we are definitely on the side of the shorts. Our models typically rate this stock a Sell, and despite the high share prices and the long-term trend, we cannot shake the feeling that something is wrong here.

Image result for tesla "red flags"

Tesla, despite the massive valuation, has never made a profit–and it most certainly isn’t Amazon, so that argument doesn’t fly with us. We believe Elon Musk benefits from a level of “fanboy” worship we haven’t seen since Steve Jobs died. We believe that all other Musk-linked activities–hyper loops, battery projects and rocket launches, serve as little more than PR to justify the share price of Tesla and hype the stock.

However–to paraphrase a wise trader, when you’re short you can definitely go broke even if you’re right. And so far, the shorts here have taken a bath. Musk seems to take their bets as a personal affront, and recent events show he may be taking actions to make their positions as expensive as possible.

We see evidence in support of this thesis in the latest Tesla news, where Musk has reportedly been considering taking the company private. He dropped this bombshell on the markets–“Am considering taking Tesla private at $420. Funding secured”–yesterday. Of course, he did this via his Twitter account. This followed other recent news that Musk had sold 5% of Tesla to Saudi investors.

At that $420/share price level, Tesla would be worth at $70 billion. This is for a car company currently unable to produce more than a few thousand vehicles a month which is also unable to support dealers and owners with spare parts, maintenance, etc.

We find this amusing. We find this problematic. We find in this recent dust up more evidence that something is wrong with this company. While Musk did nothing illegal by announcing this seemingly critical info on Twitter, to us it reeks of market manipulation.

Is it just a PR stunt? Tesla’s board has confirmed that taking the company private has been discussed. But, is this what happens when you have a supposedly revolutionary entity that is about to take over the auto world? You are going to sell the firm when all is well and you are about to break out with the holy grail for automakers, a mass-produced and affordable electric vehicle?

And of course, as the news broke out on Twitter, Musk followed up his initial announcement with an argument that taking his flagship firm private would end “negative propaganda” from the shorts betting against him. We think that speaks volumes about what is really going on here.

Of course, our computerized system cannot consider the Tesla/Musk “story,” the latest tweets, or the level of “fanboy” devotion to all things Elon. But, while we know betting short against this firm has been a losing proposition so far, we cannot help but maintain our subjective view that something stinks here. And objectively, our models find that this company is ready to take a fall.