Is Tesla Getting Cheap, Or Are Big Investors Losing Confidence?

| About: Tesla Motors (TSLA)

Summary

Down over -40% in less than a year, Tesla’s stock price is now lower than it has been in two years, but still higher than it ever was prior to two-and-a-half years ago.

Who knows what big investors are thinking? Answer: Market professionals who negotiate volume (block) transactions for billion dollar fund clients.

Those market makers [MMs] temporarily put the firm’s capital at risk to balance buyers with sellers, but only when professional hedging speculators will buy the risks seen, at an acceptable cost.

The hedging deals define the upper and lower price limits seen coming in the next few months. Appraisals redefined daily. See them here, along with actual subsequent price changes.

Not our opinions or guesses. No rationales about what should happen. Only the logical inferences of well-informed, real money being bet daily to make million dollar trades happen.

Where recent knowledgeable expectations are going

Used with permission

The vertical lines of this picture are the forward-looking price ranges of Tesla Motors (NASDAQ:TSLA) held possible and likely enough to occur, for market-makers at risk to give up part of their trade spreads to avoid unwanted impacts on positions they have taken. This is not a typical backward-looking "price chart" of past history.

The heavy dot in each range is the closing price on the day the forecasts were derived. It splits the ranges into upside and downside prospects, now +22% and -10%.

The Range Index [RI] tells that 28% of the $215 to $159 forecast range is below today's $175.33. In the past five years' days (1261) when these MMs "facilitated" such trades (244 times) with similar RIs, only 65% of subsequent TSLA prices reached the upper limit of that day's forecast in the next three months. The rest were closed out (on paper) and 35% of losing forecasts were folded into the winners, with a net +6.6% gain.

The average holding position of winners and losers was 46 market days, turning the +6.6% into a CAGR of +42%.

Pretty good, but not great, compared to lots of other current alternatives, several of which have seen triple-digit CAGRS with win odds of 88-89 out of 100 and historical performance equaling the upside currently forecast. TSLA's credibility of an upside forecast of +22% with an achieved performance of only 6-7% from similar RIs lacks credibility, with a ratio of only 0.3, not 1.0.

Unfortunately, what could make it better might be a combination of lower price and improved expectations. But what is happening is only the former, and not the latter.

In fact, the rate at which forecast price ranges are declining is showing little difference from the market quotes.

Some more historical perspective

Perhaps a bit more history might provide some useful perspective. Here is a two-year look at once-a-week excerpts from pictures like the one above.

TSLA price rallies in this past period have not come about until forecast expectations have firmed up, stopped going down, and displayed some encouraging outlooks. Then there have been ample opportunities for the heavy-dot quotes of such forecasts to subsequently rise above the tops of those earlier expectations ranges. Such times we use to examine alternative investments for more attractive coming opportunities. (Translation: take profits)

Actual price changes, post-forecasts

Here is how TSLA market prices have changed, following the risk/reward balance indicated by its RI measure of earlier forecasts:

Click to enlarge

The blue row shows TSLA's price CAGR of the market-day time-periods (yellow column footers) held, following all daily forecasts of the past five years. Rows above progressively exclude the more evenly-balanced R/R forecasts, including only the more extreme ones. The magenta 638 tells the vicinity of the current RI of 28. It is midway between the 3-to-1 and 4-to-1 thresholds of this program's discriminations.

The 234 "buys" indicated in the 4-to-1 R/R row above matches up well with the 244 instances noted in this report's first picture. What has happened in the past on that row is an encouraging rise in prices over the next 8 weeks to typical gains at CAGRs of 70%+, above the highly rewarding blue row averages of +55% to near +60%

Conclusion

So, if coming expressions of future price expectations firm up, and if TSLA prices ahead follow the market behavior of the past, TSLA investors may get amply rewarded. It all depends ...

Investors contemplating actions in TSLA may want to keep an eye on what the big dogs are thinking.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.