Is Tesla's Short-Term Strength Merely A Bearish Set-Up?
Tesla Motors Inc (NASDAQ: TSLA) shares have had yet another magical run to the upside – making it to $258.75 last Monday from $181.30 as recently as March 30.
However, technicians are warning of a potential bearish set-up developing on the charts – one that can only be negated by even more upside on the part of an already stretched-out stock.
Does Mr. Musk have enough genius moves up his sleeve to power Tesla's stock through the dreaded "right shoulder" resistance of the developing "head & shoulders" formation (more on that below)?
Below is a look at the fundamentals and technicals for Tesla to find out:
What the bulls see in Tesla
- An iconic "genius" of a businessman and visionary in Elon Musk
Some reasonable valuation metrics:
- An enterprise value of $32.82 billion that just eclipses the stock's market capitalization of $31.37 billion
- A PE of 70 that is trumped by estimated revenue and EPS growth for next year of 53% and 17,000%
- An OK short-term balance sheet picture as evidenced by the current ratio of 1.30
What the bears see in Tesla
- A company that has only gotten as far as it has by the good graces of government grants – not on running a profitable business.
Some very expensive valuation metrics:
- A price-to-book ratio of 38.35
- A price-to-sales ratio of 9.01
- Negative profit margins
- Negative management effectiveness ratios
- Negative operating and levered free cash flows annually
Some scary balance sheet metrics:
- Total cash of only $1.51 billion that is trumped by the total debt of $2.65 billion
- A debt-to-equity ratio of 320.32
The technical take on Tesla shares
Technicians note that Tesla shares may be forming a "head & shoulders" top formation. The "right shoulder" resistance would come in at either $261.25 or $272.51 – depending on how certain parallel lines on the chart are drawn.
From $250.69, that leaves the bulls with at least another $10 of upside before the major selling pressure should start.
If the bearish formation fully plays out, a down move that starts at $261.25 or $272.51 would make it all the way down to the $147 - $150 range before the selling is done. Of course, the technicians note, any close above $272.51 would negate this potentially bearish set-up altogether.
Tesla is clearly one of the darlings of Wall Street – with their visionary leader, Elon Musk, reaching celebrity status already. If the stock can manage to break and close above $272.51, it could really take off to the upside. However, if the bears are right and the stock peters out at that resistance area, some tough times could be in store for Tesla bulls in the short-term. Watch the action at $261.25 and/or $272.51 to see which fate Tesla shares will likely experience.
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