Shares of Tesla Motors Inc TSLA seemed to be invincible as recently as September 4, when it peaked out at $291.42. Since then, however, the stock has pulled back over 10 percent to under $260.
Is this just a normal, healthy correction, or the start of something more serious?
What The Bulls See…
On August 13, technicians noted that a breakout above $265 would likely lead to a push up to $300 or higher. Unfortunately for the bulls, the stock fell a bit short of that $300 mark before beginning its current descent.
However, un- or under-invested bulls love the idea of being able to buy this stock on a dip like this. The trick is to identify approximately how far the stock will fall before finding its footing in the short-term.
Technicians now say support for Tesla shares comes in around $230.29 –- a combination of horizontal line support and uptrend line support.
The bulls, meanwhile, continue to love Tesla as a "story" stock. When their focus is on “the story” like that, valuations are temporarily thrown out the window. but For the bulls, the company's cash holdings (of over $2 billion) will be more than enough to bridge the gap between now, and when Tesla really begins making massive profits.
Bulls also love the sexy 57 percent estimated revenue growth and more than 200 percent estimated earnings growth in 2015. “Yes, the price-to-earnings ratio is over 80, but how many stocks can boast this type of revenue and EPS growth?” they likely note.
From a technical perspective, this crowd should remain in the driver's seat over the long-term as long as Tesla shares do not close below $230.
What The Bears See…
The bears, on the other hand, say there's no way any company can execute to the level of perfection that would justify a P/E ratio of over 80 times next year's earnings. Any bump in the road, they claim, would send the stock tumbling precipitously.
Throw in a price-to-sales of 13 and a price-to-book of over 30, and the bears are really riled up.
Technically, they point out the break and close back below the previous price peak at $265 was a warning sign of things to come.
Who Will Win Out?
In the short-term, technicians note there is a very real possibility the stock continues to fall down to the long-term uptrend line at $230.
As long as that level of support holds, though, the bears must tread lightly. A powerful rally could recommence at any point.
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