Hedge fund Masters Capital has taken a leap of faith with Tesla Motors Inc (NASDAQ:TSLA) with an extremely bullish stance on the company as indicated by its latest filings. Masters held a call position in TSLA amounting to calls on a little over 1.2 million shares. Joining Masters with bullish positions in TSLA were Balyasny Asset Management and PDT Partners. Balyasny’s position amounted to about 311,000 shares, and PDT’s stake was a new one amounting to 115,000 shares. Other funds with new stakes in TSLA included Cobalt Capital, Legg Mason, Marshall Wace, and Graham Capital. If you respect any of these funds or a number of them, then taking a leap of faith with TSLA may be right for you. We take note of how funds like these are trading TSLA because Insider Monkey has shown that imitating their long picks can be beneficial (read the details here). It’s these funds’ short positions that usually get them in trouble and reduce their returns.
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Tesla Motors Inc (NASDAQ:TSLA)’s stock price fluctuates more than that of most other major stocks. Between September 2014 and March 2015, the stock price dropped from $280 to $185. By July, the stock price rose back to $280. These drastic swings can result in major gains for some and losses for others. However, prior to September 2014, there was a clear positive trend in Tesla’s stock price. It had increased from $34 to $280 within a year and a half. Although this trend seems to have plateaued, there is a promising potential for growth. Everyone knows the social value Tesla adds to society, but there is far more than meets the eye.
Investors have become aware of the social and economic benefits of electric cars, but most don’t know of the true impact that Tesla’s Powerwall will have. The Powerwall is a home battery that charges with the energy generated by solar panels, giving residents independence from the utility grid. The residential solar industry continues to expand its reach, and a revolution against the grid may be around the corner. The distribution of the Powerwall product has recently begun, and sales will have a positive correlation with this increased adoption of solar energy.
Tesla Motors Inc (NASDAQ:TSLA)’s stock price may have decreased by $60 over the past month and a half, but it appears as if the stock is currently undervalued. The last time Tesla’s stock fell by $60 was in Fall 2013, and the stock price skyrocketed by $120 during the following four months. Tesla’s current undervaluation combined with the emergence of more and more incredible products could make now a great time to buy some shares. The stock price may soon launch to new levels.
Although you might like the idea of investing in a company that makes our society more sustainable and gives the opportunity for major gains, you may worry about its volatility. The chart of Tesla’s stock price over the past few years has steep clefts and troughs, which may push investors away. Currently, the stock’s P/E multiple is estimated to be 90.7 on a forward basis. Also, cash flows are unpredictable, but many predict improvements in Tesla going forward as its cash flows normalize and its products catch on.
Tesla is expected to turn profitable in 2016 and Morgan Stanley predicts that Tesla’s stock price will double by year-end based on the emergence of the Model X and other battery products. Elon Musk has stated that he expects his company to disrupt the auto industry so much so that Tesla could reach Apple’s market cap within ten years. Although Musk has failed to meet goals in the past and it is expected that Tesla will spend much of their raised funds, the company could provide shareholders with plenty of returns in the long run. The company may set its standards too high at times, but it has always delivered big at some point with the leadership of Musk.
Tesla is certainly at the pinnacle of high-risk, high-reward stocks. Risk-averse investors may turn away, but Tesla is a unique company that always performs well and finds ways to make patient investors happy. Like the expected turn to profitability in 2016, NASDAQ shows EPS of $2.00 next year, along with earnings growth of 175%. If you’re willing to take a leap of faith with Tesla while the stock price is down, the company could provide major returns down the road.
Disclosure: The author does not own any shares of TSLA or other securities mentioned.
