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Stock Deconstruction

Tesla share price review: breaking down the recent rise and falls

While analysts debate whether or not now is the time to buy the dip in Tesla’s share price, Opto looks at the signs and signals behind the car maker’s biggest rallies and slumps over the past 12 months.

Of all the clashes between bulls and bears that take place on Wall Street on any given day, those surrounding Tesla’s [TSLA] share price have been perhaps some of the most impassioned.

“In 20 years of covering tech stocks on Wall Street, it’s the most emotional bull-bear story that I’ve seen,” observed Wedbush analyst Daniel Ives, talking to the New York Times in January. “I view it as no different than the Red Sox vs. Yankees. The bulls and bears on Tesla will never be having conversations over a candlelit dinner.”

But at the start of 2020, it briefly looked as though the game was over, with Elon Musk’s band of share price bulls ready to claim victory. By 4 February, the share price had surged to an incredible all-time high of $968.99 intraday, representing a 6-month gain of more than 300%, as part of an ongoing share price rally that kicked off in October 2019. So far in 2020, Tesla shorts have lost more than $8bn.

 

 

 

“It's the biggest set of losses that I've ever taken in 20 years,” private investor Robert Majteles was reported as saying in The Wall Street Journal on 9 February.

Is the speculative battle over? Far from it. The next day, the share price plunged by 17%, before reaching a new all-time high at the end of February before slumping on coronavirus-induced panic at the start of March. Now, analysts – including JMP, which has set a $1,060 share price target and ARK Invest, which argues the share price should reach $7,000 by 2024 – are suggesting it’s time to buy the dip, while Morgan Stanley recommends stockholders to sell.

What can be learnt from the share price’s frenetic moves?

 

The only way is down: January-May 2019

A decline in Tesla’s share price accelerated during the first five months of 2019, causing it to shed 44% of its value. The biggest one-day fall in this period came on the 18 January when the stock plummeted 13%, triggered by Musk’s announcement that 7% of jobs would be cut at the company due to low profits in 2018. “We need to reach more customers who can afford our vehicles...I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult,” Musk conceded in an email to employees.

An NBC report summarised the mood of the moment: “It's a remarkable comedown for the high-flying stock whose company has suffered both from production struggles and the erratic behaviour of its CEO.”

“It's a remarkable comedown for the high-flying stock whose company has suffered both from production struggles and the erratic behaviour of its CEO” - NBC report

 

The launch of the long-awaited $35,000 Model 3 at the end of February did little to placate investors. Three days after the announcement, the stock had plunged 13.5%, with investors concerned about how the low-cost vehicle would pave the way to profitability.

 

“Things could unravel quickly”: June-July 2019

The first trading day in June saw the stock price fall to $178.97, its lowest point since February 2016. The stock was able to make some gains after this, seemingly triggered by investors betting the stock had bottomed out with shorts also covering their positions due to this.

In early July, the stock received a further boost when it was revealed that Tesla delivered 95,200 cars in Q2 2019 – a record that beat analyst expectations and showed signs that Musk’s new strategy around high production of the Model 3 could work.

But the party soon ended when the earnings for the quarter were revealed on 25 July. The carmaker missed analysts’ estimates on earnings and revenue, with losses coming in at $408m for the quarter. The news wiped as much as $7bn off Tesla’s value.

$7billion

Amount wiped off Tesla's value after posting $408m loss in Q2

  

"There's reasons to be optimistic … but investors need to be very patient or I feel things could unravel quickly for Musk." commented Oanda analyst Craig Erlam, adding: "The company has never lacked ambition, rather the ability to deliver on it."

 

The rally begins: August-December 2019

In the run-up to the firm’s Q3 results, the stock remained steady, shooting up on the news that Tesla had crushed analyst expectations by announcing adjusted earnings per share of $1.86 compared to an estimated loss of -$0.42 per share. The stock surged 17.6% from $254.68 to $299.68 the day following the announcement, causing short sellers to net an estimated $1.4bn in losses.

But not everyone was convinced, with some analysts questioning the company’s ability to grow demand and sales, as well as expressing worries over falling margins. After the initial surge, the stock price made only moderate gains over the next seven weeks – despite Tesla unveiling its ‘cyber truck’ in November.

The stock was able to start building momentum in mid-December, after Oppenheimer analysts expressed positive sentiment towards the firm’s new Shanghai factory. “It appears [Tesla] is tracking toward being able to achieve its target for delivering 360k vehicles” for the year, the analysts said. “We note that [Tesla’s] deliveries are highly concentrated toward the end of the quarter and execution over the next two weeks will be critical for 4Q19 results.”

The stock closed at a new all-time high of $393.15 on 18 December – a record it hadn’t been beaten since June 2017 – and continued to rally through the month.

 

The highs continue: January 2020 - present 

Ahead of the firm’s Q4 2019 earning, momentum was still behind Tesla, with the stock climbing 55.5% through January. Shares didn’t dramatically surge after the Q4 earnings released on the 29 January, despite another analyst expectations beat.

Instead, the stock embarked on a rollercoaster ride. The first two days of trading in February saw the stock reaching an intraday high $968.99 on 4 February, before closing at just $734.70 the following day. The volatility appears to have resulted from a mix of momentum, short-covering and new analyst upgrades.

 

Market Cap$116.945bn
EPS (TTM)-4.92
Operating Margin (TTM)0.32%
Quarterly Revenue Growth (YoY)2.20%

Tesla share price vitals, Yahoo Finance, 12 March 2020

 

The stock was again able to reach a new closing high $917.42 on 19 February after Bernstein analysts said they saw “no imminent negative catalysts for the stock.”

Unfortunately, they were wrong. With hysteria around coronavirus causing global markets to tumble, Tesla plummeted to an intra-day low of $611.52 on 28 February. Many now believe the stock should rebound, but with much market uncertainty, it’s difficult to pinpoint when –– a surge at the beginning of March proved to be a false start.

It will all come down to car deliveries. An increase could cause the stock to bounce – while a drop in productivity, which could reasonably come from the Shanghai factory due to coronavirus, could see Tesla stock face new difficulties.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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