Individual investors who own Tesla Motors Inc TSLA shares might be in trouble if a correction comes.
Tesla Motors Inc (TSLA) may be turning into a trap for individual investors, according to some of Wall Street's biggest money managers. Hibah Yousuf of CNN Money reports that institutional investors have been cutting their stakes in the automaker over the last few months.
Institutional investors selling off Tesla
In September, institutional ownership of Tesla dropped to 66 percent. In January, it was at 84 percent. Most of the sell-off came in July after Tesla Motors Inc (TSLA) reported the best monthly performance in its history. But in spite of falling institutional investment, shares of Tesla have continued to rocket upward. On Monday Tesla hit a new all-time high of $194.50 but retreated slightly. In premarket trading this morning, however, the automaker's stock declined as much as 3 percent.
Investors sell big names to buy Tesla
Analysts at Bank of America Merill Lynch suggest that this means individual investors must be snapping up shares like hotcakes, and the numbers appear to back it up. Financial advisory startup SigFig tracks more than $100 billion in assets. According to the firm's data, it shows that so far this year, investors have sold almost $620 million in stock and exchange-traded fund investments this year—just to buy shares of Tesla Motors Inc (TSLA).
The data suggests that individual investors are pulling the largest amounts of money out of well-known companies like Apple Inc. (AAPL), LinkedIn Corp (LNKD) and even Facebook Inc (FB) and Netflix, Inc. (NFLX)—two stocks which have also been performing remarkably well this year.
In the pursuit of Tesla
According to SigFig, about 6 percent of its monthly active users own shares of Tesla Motors Inc (TSLA), which makes up an average of 9 percent of their portfolios. Data from TD Ameritrade, an online broker, also shows individual investors continued to snap up shares of Tesla through the middle of August.
Many individual investors chase after returns from the stock market, and analysts at Bank of America are especially concerned that they're chasing Tesla because they believe it is extremely overvalued. It trades for over 100 times its 2014 earnings estimates. They have a $45 per share price target on the stock, and they believe individual investors are especially at risk if shares of Tesla Motors Inc (TSLA) suddenly go through a correction, which they believe is long overdue.
Where will Tesla go next?
At its current price, Tesla may be maxing out even the most bullish estimates of its valuation. The average price target on the automaker is around $145 per share, although analysts who are more bullish on the stock have prices as high as $200 per share. It will be interesting to see if the stock hits that price this week and whether any of Tesla Motors Inc (TSLA)'s biggest bulls raise their price target.