Why Tesla Motors Stock Is Confusing the Experts

April 22nd, 2014
in contributors, syndication

Money Morning Article of the Week

by David Zeiler, Associate Editor, Money Morning

When you think about Tesla Motors (Nasdaq:TSLA), do you consider it an auto company or a tech company?

If you're having a tough time choosing, you're not alone. A lot of investors and analysts are getting tripped up by Tesla's unusual hybrid nature as a maker of innovative electric cars.

Follow up:

Analysts who cover the company are all over the map, with price targets ranging from a high of $325 to a low of $75. Tesla stock is currently trading at just under $200, down about 20% from highs it hit in early March.

Recommendations are split as well, with three analysts calling TSLA a strong buy, three calling the stock a buy, six calling it a hold, and one expecting Tesla to underperform.

Andy Busch, editor of the Busch Update, told CNBC that -

"There is no strong consensus here, and that contributes to its volatility. Is it an auto company or a technology company? All we really know is that it's the poster child for momentum."

It's important to figure out what kind of company Tesla is because it drastically affects how you calculate its valuation. If Tesla is an auto company, it's greatly overvalued right now. But if it's a pioneering tech company, its current valuation is in the ballpark.

The confusion in large part explains the wild ride Tesla stock has been on over the past year. TSLA is up 337% since last April, but along the way has seen two major pullbacks.

The war between the TSLA bulls and TSLA bears has been intense, with the bulls winning most of the time.

But the bears haven't given up. Despite getting hammered repeatedly when TSLA stock goes on another big upside run, Tesla's army of skeptics has been heavily shorting the stock lately.

In fact, according to research firm Markit Economics, TSLA is currently the most shorted stock in the Nasdaq 100. Nearly a third, 29.47%, of the TSLA float is short.

But the short-sellers of Tesla stock might find themselves taking yet another hit before long...

Why Tesla (Nasdaq: TSLA) Isn't Just Another Automaker

Although Tesla is literally an automaker, what the Palo Alto, Calif.-based company is doing sets it apart from the likes of Ford (NYSE:F) and General Motors (NYSE:GM).

Not only does Tesla build electric cars, but it's building cutting edge electric cars. It's changing how we view electric cars, much as Apple Inc. (Nasdaq:AAPL) changed how we view mobile phones with the iPhone.

Joe Fahmy of Zor Capital told Yahoo! Breakout told that -

"You can't use traditional metrics to value companies that are disrupting our lives and revolutionizing the way we do things."

Fahmy compared Tesla to the fledgling automotive industry of a century ago - which back then was a game-changing breakthrough with unforeseen profit potential. If you want to see Tesla's future, start with GM back in the 1910-1915 era and fast forward a few decades.

So what are investors to make of all this?

For one thing, expect the volatility in TSLA to continue. Not only is the battle between the bulls and bears nowhere close to ending, but the overall tenor of the markets is looking rockier in the months ahead.

In the longer view, however, the odds are that TSLA will reward patient investors, particularly if it succeeds in pushing battery technology forward with the help of its planned $5 billion battery Gigafactory.

Money Morning Chief Investment Strategist Keith Fitz-Gerald sees a lot to like in Tesla long term, from its disruptive sales model to its charismatic CEO, Elon Musk, to its immense potential in the global auto market.

Fitz-Gerald said -

"If Tesla figures out the export market, it’s headed outta sight. China will be an absolute home run for this company. To me, this is one of those companies that, within the right time frame, even one or two shares purchased and tucked away for a long period of time will generate a big, big payoff. If you purchase one or two shares, and put them away, 14 or 15 years from now, you’ll be really, really surprised about what they are worth.

NOTE: Where do you see Tesla stock headed next? Do you think TSLA will eventually be worth much more, or do you see the company running out of steam? Tell us what you think on Twitter @moneymorning or Facebook.

The recent tech stock bloodbath no doubt also played into the Tesla pullback. But big pullbacks are also buying opportunities when you know which stocks have the potential for a big rebound. Here are four of the best bets you can make right now in tech...

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