Tesla is on a roll with Stock gains of 19% and 20%. Many investors see Tesla and its electric vehicles as the wave of the future, but the stock can be volatile. Can you make money trading Tesla over the short term instead of trusting that the company will surpass GM, Toyota, and the rest? CNBC writes about Tesla jumping yet again.
Tesla stock is surging again, roaring above $900 a share in Tuesday trading after major shareholder Ron Baron forecast the company will top $1 trillion in revenue in a decade and as investors who bet against the stock scrambled to catch up.
Because many traders shorted the stock, there has been a lot of catching up. And, as the company posted its first profit ever, those who invest based on fundamentals instead of hope seem to have started putting money into the company. Analysts have raised the price target from the $300 range in December to nearly $500 today. However, the stock is now trading well above the new target price.
Investments in Tesla Inc.
Tesla has traded on the NASDAQ since July of 2010 when it traded at $17 a share. As recently as 2013 you could buy a share for $39. Then Tesla went up into the $200 to $300 range through 2016 and spent 2017 and 2018 pushing $400. At that time Tesla fell back and bottomed at $204 a share in July of 2019.
Over those years Tesla started as a “story stock” based on the belief that electric cars would become the norm and that Tesla would lead the way. However, the company never made any money and routinely had problems meeting production quotas. That was the main issue as the stock price fell during early 2019.
However, the company solved many of the production issues and, for the first time, showed a quarterly profit! The question now for traders is if you can make money on Tesla or has the big jump in stock price already happened? And, if that is the case, can you short the stock or trade options?
How Should You Trade Tesla Today?
In this regard there is an interesting article in Tech Crunch. They pose the question, what is going on with Tesla? Why is the stock price rising so rapidly?
The company reported earnings on January 29th, last Wednesday, leading to a nice bump in the company’s value. That sort of post-earnings move is quite normal. However, its value appreciation since that event is a bit harder to understand.
Tesla’s financial health has improved in recent years. However, Tesla reported effectively zero year-over-year revenue growth, slimmer operating income, and modestly improved adjusted profit in Q4 2019, hardly the picture of a company that should quickly appreciate 60 percent in rapid fashion.
They note that the thing that has improved greatly for Tesla is its price to sales ratio (PS ratio). The PS ratio for Tesla had fallen to its lowest (and about a seventh of what it was years ago). With recent price increases, the PS ratio is still about half of its highest from years ago. What this tells us is that as the company has marginally improved its production and profit, those who are investing on hope are inspired to buy more of its stock.
Smart traders will probably bide their time and lie in wait for a small bit of bad news that will drive the stock downward again!
