I'll let you all in on a little secret of mine: a big part of the reason that I publish articles is, quite frankly, to see if my theses hold up to the scrutiny of the collective investment minds here on Seeking Alpha. From investment professionals, to retail investors with good heads on their shoulders, I find that there is nothing more valuable than a robust discussion in the comments section of the articles that I write - and I'm sure many of my readers would agree. That is why I try to stay active in the discussions, even when rotten tomatoes are being flung at me!
However, while I do make it a point to mine the comments sections for excellent arguments, often times when I am mulling a contrarian position (i.e. shorting a bubble stock, or buying a "loser"), I tend to put out an article that tends to project that contrarian predisposition. The most valuable part of this, of course, is the set of reactions that I get from the crowd. So, for example, when I put out a "negative" piece and I get an extreme reaction from the bulls (some of whom go so far as to send me death threats to my inbox - yikes!), I know that there are a lot of folks, probably levered to the teeth, betting on this stock. And that, in my mind, tends to 'confirm' the existence of an inflated demand for the security based on a set of pie-in-the-sky assumptions.
Remember Apple $1000?
The same arguments that I hear today from the Tesla bulls about the dramatic upside potential for Tesla's sales because Tesla's cars represent a quality product (they sure do - I'm not arguing that), remind me exactly of the argument that Apple would hold on to its market share and high margin structure in the smartphone and tablet spaces because nobody would want those "cheap, plastic Android phones".
Well, those "cheap, plastic" devices sure do sell. Android is the world's most popular smartphone OS, the Google (GOOG) Nexus 7 is kicking some real booty (and the latest incarnation is a pretty amazing device, irrespective of price), and whitebox tablets in China are now all the rage. While I do think that the upcoming product refresh cycle will start to claw back some of this lost share (I'm hopeful that the new iPad Mini just outright rocks), the point remains that when a stock is highly inflated due to highly unrealistic assumptions, it has a tendency to fall back to Earth in a very swift and painful manner.
That's how I feel about Tesla. I have seen excellent arguments from our very own Michael Blair and Retired Securities Attorney (both very sharp individuals) that outline just why the current prices may not even be unreasonable in light of the potential earnings power of the company, based on a mass expansion of Tesla's car sales base to 125,000 units or so per year. Maybe one day these predictions will come to pass (and the market is just damn good at seeing this in advanced) and maybe Tesla truly will justify a $190/share valuation, but the problem here is that this is the best case scenario. It will be years before such production capacity will be in place, and there's no guarantee that there will even be this much demand for higher end luxury cars. Sure, Telsa could roll out something cheaper and try to make it up in volume, but even then there's all of the thorniness associated with electric vehicles in general, and by the time those issues are worked out, one of the larger autos may have stepped in and cleaned up the higher volume space.
I don't like investment theses that rely on absolutely everything going right, because the minute something goes wrong, it's game over.
I Still Think This Is Just A Short Squeeze Gone Wrong (Right?)
Short squeezes are wonderful things for longs. While the folks over in BlackBerry (BBRY) land never got the massive squeeze to $100 that they were looking for, a good deal of the highly shorted stocks this year have substantially rewarded investors. GameStop (GME), hhgregg (HGG), Take-Two Interactive (TTWO), and many others have seen wonderful YTD performance precisely due to very large short bets that were bulldozed by improving businesses and, more importantly, the cheap liquidity afforded to the market via the Fed.
Tesla, however, is the short squeeze of the year - in just six months shares have appreciated by a whopping 370% in what seems to be a relentless combination of shorts covering and longs panic buying. It has been pure slaughter-house for those holding short positions on the stock, and quite frankly I'm surprised that Tesla still shows up on the list of most highly shorted stocks - meaning that somebody still has the guts to be short this stock.
But I think that given the extreme positive sentiment and a share price that is just - in my view - so out of touch with the underlying fundamentals of the business, that the shorts will ultimately win this battle. The problem is that in the near-term, the shorts will continue to get sucker-punched as the stock could march to the psychologically significant $200 mark. So, I wouldn't short it here - not yet. Wait for signs that the story is starting to fall apart, and wait for your technical indicators of choice to scream sell. The problem with short positions is that you really do need a downside catalyst to get the avalanche going. You might not be able to claim that you got the top, but you'll be able to make a lot of money riding the weekly-put pain-train once the sentiment has turned.
Until then, I'd say just stay to the side-lines. It's too risky here to go long, but at the same time I don't have the fortitude to go short - yet.