Tesla Motors Inc (NASDAQ:TSLA)’s flamboyant founder Elon Musk has been instrumental in the electric car company’s rise. Under his stewardship, shares have rallied over 130% since the company went public.
Yet, Musk’s recent antics seem reminiscent of Netflix, Inc. (NASDAQ:NFLX) CEO Reed Hastings prior to his company’s stock plummeting in the summer of 2011. Back then, it didn’t end well for Netflix, Inc. (NASDAQ:NFLX) shareholders. Perhaps Tesla Motors Inc (NASDAQ:TSLA) will suffer a similar fate.
Elon Musk has been particularly outspoken in recent weeks
Musk has always been a lively character. In fact, Musk was the inspiration for the billionaire playboy Tony Stark in the Iron Man movie series. But recently, he’s been more active than usual.
In February, Musk took to twitter to bash The New York Times Company (NYSE:NYT) for writing an unfavorable review of the company’s flagship sedan, the Model S. Musk backed up his tweets with a series of TV interviews in which he alleged that the reviewer had lied about the route he had taken.
Then, just last week, Musk sent out a cryptic twitter message promising some big announcements from Tesla Motors Inc (NASDAQ:TSLA) in the coming days. Later, the company announced that it was expecting its first quarter of profitability, and on Tuesday, Tesla unveiled an innovative new leasing program.
Keeping the element of mystery going, Musk promised more exciting announcements to come, including something big that was “just under the nose” of current Model S owners.
The effect of Musk’s media blitz has been to send shares of Tesla Motors Inc (NASDAQ:TSLA) sharply higher — Tesla shares set a new all-time high on Tuesday.
Reed Hastings’ challenge to the shorts
Musk’s media blitz bears some similarities to the roll Netflix, Inc. (NASDAQ:NFLX) CEO Reed Hastings was on prior to Netflix’s epic collapse in the summer of 2011. In just a few months, shares of Netflix went from trading above $300 to trading under $100.
On Dec. 20, 2010, Hastings penned a response to Whitney Tilson, a hedge fund manager who had been vocal about his short bet on Netflix, Inc. (NASDAQ:NFLX) stock. In his piece, Hastings attempted to rebuff Tilson’s thesis point-by-point. For those who haven’t read it, Hastings’ title truly says it all: “Cover Your Short Position. Now.”
That bears remarkable similarity to something Musk said to Fox News last September. In an interview, Musk proclaimed that it was “very unwise” to be shorting Tesla Motors Inc (NASDAQ:TSLA) and that, more ominously, there was a “tsunami of hurt” coming for Tesla’s short sellers.
Since Netflix, Inc. (NASDAQ:NFLX)’s drop, Hastings has been kept a more humble profile. In an interview with Vanity Fair, Hastings acknowledged his past arrogance and admitted his mistakes. Will Musk be forced to follow Hastings in this manner as well?
But expensive stocks can get even more expensive
To be fair, Musk’s “tsunami of hurt” has played out, to some extent. Since the interview aired, shares of Tesla have rallied almost 60%. Yet, the shorts remain resolute. As of the last report, about 44% of the company’s outstanding shares have been sold short.
Tesla is certainly an expensive stock. Until it reports several quarters of profitability it will have no official trailing price-to-earnings ratio, at the same time, its price-to-book ratio is almost 40-times that of General Motors Company (NYSE:GM).
But just because a stock is expensive, doesn’t mean that it’s destined to drop. salesforce.com, inc. (NYSE:CRM) is run by Marc Benioff, a CEO arguably as flamboyant as Musk. Like Tesla, Salesforce has been one stock that has consistently attracted short sellers, and consistently burned them.
Compared to its established competitor Oracle Corporation (NASDAQ:ORCL), Salesforce’s trades at vastly inflated financial metrics. Its forward PE ratio near 70 is almost seven times greater than Oracle’s 11. Meanwhile, shares of Salesforce have rallied more than 200% in the last five years. Currently, about 10% of the company’s shares have been sold short.
Buy or sell Tesla?
When it comes to investing in Tesla, traders must decide if they believe the company is more like Salesforce or more like Netflix: a high flyer that has burned its detractors for years, or an expensive stock doomed to drop.
The article Tesla’s Elon Musk Is Starting to Sound Like Netflix’s Reed Hastings originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
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