Tesla’s shares have gone from a parabolic move over the past two months to a SpaceX rocket ship in the past week. After moving from $255 to $315 a week after the company reported its September quarter financial results on October 23 and then to $350 two weeks later, the shares started its parabolic move in early December.
[Authors note: This not is investment advice and investors need to do their own research.]
After the shares closed at $581 last Wednesday the stock climbed over $300 to a high of $969 on Tuesday before closing at $887, $82 off its high. The shares are up 53% in just four trading days, up 36% in two days and 112% year to date.
This kind of investment return can quickly go to one’s head as lots of endorphins are released. However, it is best to step back and realize that this is more than likely too much of a good thing, it won’t continue and there will be a pullback. So if you bought Tesla stock last week and have a paper gain, it could be very prudent to cash in some in case the stock round trips.
The shares are VERY overbought
The company has added $57 billion to its market cap over the past four days, $44 billion in the past 2 and $88 billion since the beginning of the year. While short covering has helped, it does seem that it is new buyers coming into the stock and current shareholders not willing to sell that have created such a volatile upward move.
The shares are in an extremely overbought condition as shown in the top and bottom portion of the stock’s graph above. The top graph shows the Relative Strength Index or RSI which is at 93. Typically a reading above 70 means the stock is overbought. It is very rare to see a reading above 80 for any length of time and especially not 90.
The bottom graph is the stock’s MACD indicator or Moving Average Convergence and Divergence. As shown in the graph it has escalated to heights that the shares have not seen in at least three years, if ever. Another extremely overbought signal.
Tesla is the second most valuable automobile company
There is a great Google Doc created by Brandon Knoblauch titled “Top 25 Automakers by Market Cap” that compares Tesla to the other 24 most valued automotive companies. With its stock price spike the past few days Tesla is now the second most valuable auto company and it “only” needs to move another 25.6% or $227 to $1,114 for it to displace Toyota as the most valuable one.
It is fairly obvious it doesn’t make sense for Tesla to displace Toyota since Tesla is shooting to make 500,000 or more cars in 2020, while Toyota makes around 10 million per year. Tesla may be able to sustain this market cap based upon hope, but reality may catch up with it. And keep in mind that the shares did fall $82 in the last 30 minutes of trading on Tuesday or over $15 billion in market cap.
This is boring compared to the stock’s run but consider Tesla’s bonds paying 5%
I realize this is a very, very boring investment when the stock has more than doubled since the beginning of the year and is up over 50% in four days. However, if you want to pocket some gains and could use a little bit of income think of the bond dollar payments being higher since the amount of bonds that can be bought is significantly higher due to the stock’s run.
Tesla has 5.3% bonds that become due on August 25, 2015, that are trading slightly above par, which puts their yield to maturity at about 5%. This should be a fairly safe bond since the $160 billion market cap the shares have makes it extremely unlikely that the company won’t be able to pay them back. Even if Tesla can’t generate enough cash to pay for its maturing debt between now and then, as long as the stock doesn’t totally crater it could sell more shares to pay off the debt.