Tesla Defies Bears, Surging on Model 3 Optimism

TeslaThe Bears Are Looking Wrong on Tesla

Tesla Inc (NASDAQ:TSLA) is quickly proving me and the short sellers wrong. The stock did retrench below $200.00, but it has been on a tear on the chart, surging to a 52-week high of $271.18 on Thursday.

TSLA stock has nearly doubled from its 52-week low, and it is sending the bears to cover. There is still a hefty short position of 35% or 38.34% of the float, so Tesla stock could continue to get support if the stock ratchets higher (Source: “Tesla, Inc. (TSLA),” Yahoo! Finance, last accessed February 9, 2017.)

With the record high, TSLA stock now has a market cap of $43.5 billion, which is approaching the $48.74 billion for Ford Motor Company (NYSE:F) and $52.7 billion assigned to General Motors Company (NYSE:GM).

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Chart courtesy of StockCharts.com

In my previous reviews, I was concerned about the valuation assigned to Tesla, but clearly the market thinks otherwise.

My view is that Tesla is still pretty rich, based on the traditional way of analyzing stocks, but then this is the new realm for investments, where stocks trading at crazy multiples are accepted.

The expansion in multiples clearly indicates that a lot of good news is being discounted into stock prices.

In the case of Tesla stock, we are seeing the market value the company as a technology growth play, rather than an automaker.

My Bull Case for Tesla Stock

Tesla does have amazing technologies in the auto space and in the almost-forgotten residential rechargeable battery segment, where it is quickly expanding.

The fact that Tesla cars are all made in the United States helps, especially given the “America First” push by President Donald Trump.

The battery technology and powertrain of the Tesla is continuing to reach new heights. The Tesla “Model S P100D” just made the news after clocking a zero-to-60 speed in a mere 2.27 seconds, which is faster than any production car made.

It is this kind of innovation that makes Tesla a special situation that requires a different approach to valuation.

Much of what TSLA stock does over the next few years will largely be dependent on the success and ability to deliver its new mid-price Tesla “Model 3” sedan to the market. If Tesla can successfully deliver this $35,000 car to rave reviews, there would be no reason to not expect that TSLA stock could reach much higher.

But if you are nervous about entering after a record high, you could control the maximum risk by playing TSLA stock via long-term call options or try to enter via selling lower strike put options.

At the end of the day, no one had bet against Apple Inc. (NASDAQ:AAPL) founder Steve Jobs, so I wouldn’t bet against Tesla founder Elon Musk either.