The reasons are multiple. Pressures on the name have been felt due to the regularly erratic behavior of CEO Elon Musk, to the recent headlines covering rising costs to insure oneself against a default of the firm's debt. That came on the heels of news that the firm had asked several suppliers to refund some cash to assist with profitability.
What I do know about this firm is that it has always been a cash-burn story. At times, production levels improve to the point where profitability can reasonably be spoken of. Nomura, just last week, came out to defend the firm. Analyst Romit Shah wrote on that point: "If Tesla can execute to plan, we believe that the narrative around bankruptcy risk will go away, thereby reducing short interest and driving the stock higher." Nomura has Tesla rated as a "buy" with a $450 price target.
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From my neck of the woods, I only know that CEO Elon Musk is indeed the money man. Musk seems to be able to raise dough whenever dough is needed. As an investor/trader who usually values fundamental analysis as much as, if not more than, technical analysis (I eagerly use both to my advantage), I can honestly tell you that I have lost money most of the times that I have shorted Tesla over the years, and that I have made very nice gains both of the times that I have reluctantly played this name from the long side. The last one was just an experiment, because I could not get the borrow ahead of first-quarter earnings.
Tesla reports on Wednesday, and the first expectation would, in my opinion, be that the CEO will not lash out at any analysts asking questions that investors want answered as the earnings call commences. Consensus view for second-quarter earnings is a loss of $2.81 a share. The range of expectations made public by 21 analysts spans from a loss of $3.44 a share to a loss of $1.71 a share. Whispers are in the neighborhood of a loss of $2.90 a share, and second quarter 2017 printed at a loss of $1.33 a share.
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As for revenue, the average estimate seems to be around $3.97 billion. That would be up from $2.79 billion for second quarter 2017, and good enough for year-on-year growth of 42.3%. To be fair to Tesla, the firm has beaten expectations for revenue in seven consecutive quarters, and that number has increased sequentially in each of the the last six. I see these cars every day now. They're around.
To tell you the truth, I just don't know what counts for more on this chart, the obvious Fibonacci support level that came into play last week, or the declining top-and-bottom trend lines that require the observer to completely omit wild market reactions that appear to be caused by keyword-seeking algorithmic overreaction.
Fundamentally, the name is a mess. It always has been. Free cash flows remain badly negative, Current and Quick Ratios scream out for help at levels that usually prevent me from even considering investment. Almost one third of the entire float is still held in short positions... and that's just it. No matter how ugly this name is, there is still one aggregate clocked buy ticket out there for something like 37.3 million shares. Hard to ignore.
Ideas on How to Play
From an equity perspective, I will likely make my mind up in the final 15 seconds of this Wednesday's trading session. We all know that the name can swing, so if I do initiate an equity position, it will be small in size. More for the thrill of having skin in the game than for anything else. Currently a 297.50 August 3rd straddle (options strategy involving a put and call with the same strike and same expiration.) will cost you (based on Friday's close) $26.38, meaning that for a trader invested in that idea, the last sale would have to move either above $323.56 or below $270.80 (by this Friday) just to do more than break even.
Is the risk/reward there for such activity. I'm not sure it is. I do not think that my usual options writing strategies that I use to raise revenue apply here at all. I use those strategies as much for the raising of revenue as I do for portfolio building. I do not want Tesla in my portfolio for anything other than speculation. This name could very well run wild in either direction, causing much pain and the gnashing of teeth.
I'll probably go out a few months and buy a deeply out of the money put for some lunch money. Seems silly? That's where the risk/reward actually makes sense for a trader on a retail (or common sense) budget. October $120 puts went out at $1.90 on Friday. October $470 calls went out at $1.03. Speaking for myself, that's all I'm willing to risk on Tesla.
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