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Why is Tesla stock going up?

Tesla ($TSLA), one of the most shorted stocks of all time is on a HUGE bull run. Here's why...

Intro

Tesla has had some WILD swings in recent years.  From being one of the most hated and shorted stocks to the most valuable car maker of all time.  This stock has always had a split following of those who 1) look at Tesla as an automaker (these are the majority of the shorts, thinking Tesla cannot compete with the large companies….they’ll be rethinking that argument with this week’s news) or 2) see Tesla as a tech company.  The Tech Side sees where the real value in Tesla is: innovation and pushing boundaries.  Yes, Elon Musk has made some controversial decisions in the past, but he is good for one thing — making stuff happen.  Now let’s get you caught of on the latest news for this tech/car giant.

Latest News

“Tesla is Now the Most Valuable US Car Maker of All Time”

This article, released on January 7, 2020, gave the company's stock a nice boost to help keep up this bull run.  The company closed the previous Monday with a market value of $81.39 billion.  This number surpassed the previous record set by Ford in 1999 at $80.81 billion.  At the close of that Tuesday, $TSLA was already up over 12% on the year!  But what does this all ACTUALLY mean for the stock?  Well, as mentioned in the introduction, half of $TSLA stock followers (the Shorts) believe Tesla could never compete with the other major automakers.  Now that Tesla has the numbers to disprove this belief, it is possible the Automaker Side with see Tesla as being more valuable like the Tech Side.

This is called a bear trap — when shorts get caught in a stock that moved downward for a short period but then continued its inevitable bull run.  When a bear trap triggers and continues up, a stock often spiked up as bears cover their short positions, limited their losses and causing brokers to buy the shares back.  The result of all of this: an even more powerful bull move.  Imagine a barricade being held up by bears.  Then bulls come and try to break that barricade down.  More and more bulls come until the bears finally give up and all of those bulls charge ahead with full force.  That is what is happening to $TSLA right now.

Fundamental Analysis (January, 2020)

Income Statement

Important Numbers

• Book Value Per Share (mrq) — 33.56

• Price/Book (mrq) — 15.96

• Operating Cash Flow (ttm) — 2.21B

What does this mean?

The company has cash to spend on growth but is quite overvalued!  A P/B value of less than 1.5 indicates a stock could be undervalued (meaning the current price per share is less than the true value of the stock).  Tesla’s P/B value indicates that the current price per share is greater than the true value of the stock on paper (as is true with many young innovative companies with high expenses from breaking barriers).  Invest at your own risk.  Tesla could either skyrocket as its theoretical value meets its true value or it could plummet down to its true value per share and ride the wave up from there slowly.


Balance Sheet

Important Numbers

• Book Value — 4.8B

What does this mean?

This is the total stockholders’ equity. AKA the equity the you are buying a share of when you invest in the company.  You can assume this number is the monetary value of the company currently.


Cash Flow (TTM - trailing twelve months)

Important Numbers

• From operating activity — 2.2B

• From investing activity — -1.4B

• From financing activity — 1.5B

• Net change in cash — 2.3B

• Capital Expenditure — -1.3B

What does this mean?

Tesla has been making moves!  They saved $2.2B from their operations over the past 12 months.  Not only that, but they are also investing in the future growth of the company while covering those investing costs by issuing common stock.  All in all, Tesla has gained $2.3B in cash over the past 12 months.  Not only that, but they are also only spending $1.3B on property, plant, and equipment expenses compared to Ford’s $7.5B and GM’s $23B.  Lastly, with


One final calculation combining these fundamentals:


Cash Flow / Total Expenses * 12 = Months of Expenses Held in Cash

(most large companies hold at least 3 months worth of expenses in cash)


For Tesla (as of 12/31/18, the latest annual report):

3.7B / 22.5B * 12 = 1.97

This indicates that Tesla has roughly two months of expenses in cash.  Therefore, the company can survive for two months at the current rate of expenses without any income or investment.

Technical Analysis (January, 2020)

The following chart shows the major Resistance-Turned Support and Support levels on the weekly chart for $TSLA.  To learn more about how to find these levels and do more technical analysis of stocks, click here.


$TSLA Weekly Chart

You can see that $TSLA has had a very successful breakout over the previous strong resistance level in the 380s.  Now that this has been broken as well as two MAJOR whole numbers (400 and 500), $TSLA could be getting overextended to the up-side as it fights with the next psychological resistance level at 550.  What goes up must come down.  Therefore, it is likely that $TSLA will pull back once it becomes too overextended.  It is impossible to predict exactly where this level will be, but the farther away from the previous pullback, the more likely the next pullback becomes.

Summary

Tesla is making big moves and changing an entire industry.  This takes a lot of maneuvering and adaptability which leads to high expenses, low cash flow, and high stock volatility.  In conclusion, Tesla is not fundamentally a terrible company.  In fact, it is fundamentally quite good.  On the technical front, the stock is a bit overextended as positive news keeps coming out and shorts take profits or change teams to the bull side.  So, if you are holding this stock, enjoy the profits!  If you aren’t holding it yet, are you going to hop on the train and if so, when?

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