Tesla's Run May Be Stalling Out

SAN FRANCISCO ( TheStreet) -- Shares of Tesla Motors ( TSLA) have had an incredible performance this year, gaining 374.5% year-to-date. Part of that is due to improving fundamentals, incredible showmanship from CEO Elon Musk, Tesla's ability to disrupt the automotive market as a whole, and an incredible short squeeze this year. However, as Tesla matures, it will start to trade more on fundamentals and less on momentum and cultish behavior, and that moment may be approaching sooner than expected.

When Tesla issued convertible debt to help pay off its Department of Energy loan earlier this year, the convertible debt becomes convertible at $184 a share, some $25 away from where the stock is trading. While Tesla's run is no doubt incredibly impressive, annual moves of more than 400% are outliers, not the norm, no matter how impressive the company might be.

In Tesla's second quarter, revenue was $405 million, impressive for a small automaker, much less one credited with changing the industry. The Model S, of which Tesla delivered 5,150 units in the second quarter, continues to be a hit with consumers, the media, and analysts. Having personally driven the car, I can say it is the best driving experience I've ever had.

Last week, NYU professor Aswath Damodaran put out a valuation piece, saying he got an estimated fair value price of $67.12, prompting much debate on social media. Professor Damodaran's piece was questioned as he looked at the Palo Alto, Calif.-based Tesla purely as an automotive company, and not one that disrupts other industries, including batteries and power train systems. Tesla, which gets a portion of its revenue from selling power trains to Toyota Motors ( TM) and Mercedes, has the potential to disrupt those other markets, but for now the company's main focus is on improving and innovating in the automotive market.

Even CEO Musk, who in addition to running Tesla, also runs SpaceX, has said that Tesla's valuation is generous. Tesla is being valued right now not as a technology company or an automotive company, but rather a disruptor to the market it is in. Disruptor companies, like Amazon.com ( AMZN) and Netflix ( NFLX), are afforded higher earnings multiples as they continue to move into new areas (Amazon with AWS, groceries, software) or out-innovate existing players (Netflix releasing originals all at once), but eventually that run will end.

Tesla still has a long way to go toward disrupting the automotive market, and investors, including Jeffrey Gundlach, are "scared to short it" for fear it will go sharply higher. However, the $184 conversion price on the debt is a level at which investors may want to consider taking profits and reevaluating their positions in the name.

-- Written by Chris Ciaccia in San Francisco

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