Tesla Motors Inc (NASDAQ:TSLA)‘s stock edged up in pre-market and opened the Thursday trading session at around 2.50% in green amid news that the company plans to offer 2.10 million shares in a public offering. Moreover, as Tesla stated in its filing with the SEC regarding the offering, CEO Elon Musk is interested in buying up to 83,974 shares in the offering for an aggregate purchase price of around $20 million. Underwriters for the offering will be Goldman Sachs & Co., Morgan Stanley, J.P. Morgan, Deutsche Bank Securities, and Bank of Americal Merrill Lynch. Tesla plans to obtain around $500 million in gross proceeds from the sale of shares and will offer an additional $75 million worth of stock as over-allotment options. The net proceeds will be used to accelerate Tesla’s growth in the US and internationally, which will include the expansion of its Supercharger network, stores and service centers, as well as the development and production of Model 3 vehicle.
Tesla Motors Inc (NASDAQ:TSLA)’s stock is up by almost 10% year-to-date and has been fluctuating in the last weeks on the back of a string of news from the company. At the beginning of July, the company announced that it had record deliveries of 11,507 Model S vehicles during the second quarter, which represented a 52% annual growth. Last week it disclosed its financial results for the second quarter, which included revenue of $1.20 billion, up by 40% on the year and a net loss of $0.49 per share, which beat the estimates of a loss of $0.59 per share. However, in its letter to shareholders for the second quarter, Tesla also cut its delivery outlook for the full year, which sent the stock 12% lower on August 6. The company had previously predicted to deliver 55,000 new Model S and Model X vehicles, but later restated that this number may be short by as much as 5,000 units.
Tesla Motors is a very controversial stock, which can also be noticed by the large differences of opinion among analysts. For example, S&P Equity Research downgraded the stock to ‘Sell’ last week after the earnings release, while Credit Suisse reiterated its ‘Outperform’ rating and the price target of $325. Moreover, Bank of America Merill Lynch also reiterated ‘Underperform’ rating with a price target of $180, among others.
However, another important metric that could help clear out the situation around Tesla Motors Inc (NASDAQ:TSLA) is the hedge fund sentiment that we follow at Insider Monkey. We base it on the popularity of the stock among a pool of over 700 hedge funds, as well as, the aggregate value of these funds’ long positions in the company. We determined that hedge funds are very good at picking individual stocks, even though their average returns have slumped in the past years. However, we also determined through empirical research that the best-performing ideas of hedge funds are their small-cap picks, which are usually priced less inefficiently and have a better chance to be traded at a discount. Our small-cap strategy focuses on 15 most popular small-cap stocks among hedge funds from our database and it was launched in August 2012. Since the launch, this strategy generated cumulative returns of over 123%, beating the market by around 65 percentage points (see more details here).
In this way, when we look at Tesla Motors Inc (NASDAQ:TSLA), we see that investors are not very fond of the company as at the end of March only 29 funds held around $1.04 billion worth of stock, which represented roughly 4% of the company at the time. In March, we discussed that hedge funds consider Tesla’s stock overvalued and that it is dominated by a significant level of short interest, based on the data from hedge funds’ equity portfolios for the end of 2014. During the first quarter of 2015, the situation slightly improved as the number of funds holding shares went up from 25 at the end of December, but the aggregate value of the funds’ holdings declined by approximately 25% over the quarter, partially impacted by the stock’s 10% drop during the same period. In this way, on average hedge funds opted to reduce their exposure to Tesla.
Since the current round of 13F filings is not completed, we can’t assess the changes in the hedge funds’ opinion regarding Tesla during the second quarter. So far, among the funds we track, Daniel Benton’s Andor Capital Management disclosed an unchanged position of 1.0 million shares, while Joe Dimenna’s Zweig Dimenna Partners and Drew Cupps’ Cupps Asset Management raised their stakes to 93,258 shares and 61,437 shares respectively.
With this in mind, it looks like there won’t be any surprises in the hedge fund sentiment for Tesla Motors Inc (NASDAQ:TSLA), which suggests that the smart money are underweight on the stock. However, the company’s plans to fund its expansion with a new stock offering paints a brighter picture.
Disclosure: none
