Time and again, I have been emphasizing on the fact that Tesla (TSLA) is well on its way to achieve profitability in the next year. However, the fact that the stock has been shorted in large quantities, surprises me a lot. The other day, I was shocked to hear that Cramer declared Tesla's stock as very expensive.
I believe that Tesla is a great buy. Various catalysts are expected in the future that are expected to drive up the stock price. Also, Thursday, the price of the stock fell by 5% without any significant news. I believe this has provided the investors with an ideal entry point in the stock.
Tesla's stock is not expensive!
There is no doubt that the stock is trading at a forward multiple of 220x. However, in one of my previous articles on TSLA, I showed how the target price could reach $42. Therefore, it was wrong to say that there is no potential in the stock.
Also, it is important to note that there are multiple catalysts on the horizon that can push up the stock price:
- Sustained positive cash flows:
A tweet from Elon Musk, the CEO of Tesla, on 4th December indicated that the company was narrowly cash flow positive. I have covered this in detail already.
- An increase in reservations for the Model S and Model X cars:
The last disclosure from the company stated that the company registered more than 13,500 reservations for the Model S car. The reservations for the Model X started on Feb. 11 this year. Pre-orders are currently above 2,000 and according to Morgan Stanley, they are expected to reach 3,200 by the end of this year. I believe this is a phenomenal number given that the production of the car has not yet started and the prototype alone has attracted so many orders.
- A growth in the current production rate (slightly above 200 cars/week):
Last week, Maxim disclosed that, according to its estimates, Tesla delivered 1,150 cars in the last month. This translates to almost 290 cars/week.
- An increase in the percentage of shares owned by Institutional investors:
Last week, Blackrock, disclosed a TSLA position of over 5.6 million shares (almost 8% of the total float). This will also lead to a rise in the investors' confidence.
- Tesla's expansion across the borders:
The company has decided to start the sale of the Model S car in Europe in March 2013. Yesterday, the company announced the opening of a new distribution channel in the Netherlands.
- An improvement in the margins:
The company aims to achieve a gross margin of 25% by the end of 2013.
The stock has been shorted in large quantities. Currently, 42% of the overall float has been shorted. This shows the bearish sentiments towards this stock. However, over the past couple of months, from time to time, this company has given good news to its investors. Despite that fact, the bears are still not ready to accept that this stock is ready to be short-squeezed.
With a 5% dip in the stock price, I suggest that it is a golden opportunity for the investors to enter the stock.