At the start of the second quarter, electric car-maker Tesla Motors (TSLA) was seen as a volatile and speculative $40 stock. By the end of the third quarter, just six months later, it was closing in on $200 a share and had become the undisputed darling of Wall Street.
Since then, reports of three fires in its Model S sedans have generated massive media coverage, cut 40% off the share price, and now, have prompted the National Highway Traffic Safety Administration to take a look for itself.
Obviously, with that kind of ride (excuse the pun), Tesla's valuations have themselves been put through some rigorous testing and have pushed investors to make a tough call. One of them is Cole Wilcox, the CEO of Longboard Asset Management, who was - and still is - a long-term believer in the Tesla story. However, since his last appearance on Breakout in April, when the stock was at $45, Wilcox has now taken on a decidedly more defensive tone.
"We have a short position in Tesla (now), " says Wilcox in the attached video, noting that he got out of the stock at about $175 right after its recent earnings report. "I don't think there's an issue with the car, there's just been an issue with the momentum of the stock and the valuation."
And he's not alone. Right or wrong, the number of analyst "buy ratings" has also been trending lower with the slumping share price, and stands at just 20% today, with the majority now rating the stock a hold. In addition, the company's third quarter earnings didn't help its cause either, as its 5,500 vehicle deliveries were a hair less than the astronomical projections some were expecting. Like any stock, Tesla's future market success - or failure - will be dependent upon the numbers.
"I think seeing the stock down around $100 or below would be an area that I would be looking for," Wilcox says, of a stock that even now, in its diminished capacity, still trades at 85-times next year's estimated earnings, and almost 9-times its sales of the last twelve months. "I would expect there will be an opportunity to be on the long side again in the future, but we're probably a long way away from that."
For its part, Tesla and its celebrity chairman Elon Musk have tried to keep the crisis in context, and have done all the right things to keep current and future customers happy and calm with a mix of statistics, after market tweaks, and a warranty upgrade. Even the Tennessee doctor involved in one of the fires has written the company about his unwavering support, noting that he would "buy another one in a heartbeat."
To be sure, Tesla has never been bashful and its homepage still greets visitors with "The Safest Car in America" claim. While that very well may be true, this piece is about the stock, which has been humbled and temporarily detached itself from the merits of the company. At least for the time being.
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