Tesla (TSLA) Finally Sees Stock Sky Dive, But Seems Stable Now

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After getting close to $200 per stock, Tesla (TSLA) stock took a sudden and steep drop just following reporting of its 3rd quarter financials last week. Interestingly, sales were up and revenue was up, but they weren’t up as much as investors had hoped, apparently. Furthermore, while Tesla made a profit using non-GAAP accounting, it didn’t make a profit using GAAP accounting. Nonetheless, it performed better in this arena than predicted, and the company has raised its 2013 sales guidance from 21,000 to 21,500.

As I write this, Tesla stock is at $144.7 per share and seems to have stabilized again after the free-fall, a free-fall that actually triggered a NASDAQ “circuit breaker,” meaning that short-sale transactions of the stock were restricted for some time.

With that background, I think three key questions are raised that I will chime in about.

1) What the hell is going on with Tesla stock?

By almost anyone’s account, the stock market is illogical. Not much has changed at Tesla in the past year in terms of its plans and what it has accomplished. Yet, the stock was one of the breakout stocks of the year and broke into the NASDAQ 100. The stock rose from $35 per share on January 2 to a high of $194.50 per share. That put Tesla at nearly 50% GM’s market valuation, despite GM being many times larger in every respect. Even Elon Musk, the company’s largest shareholder as well as CEO and Chairman, implicitly noted that Tesla stock was overvalued. In August he stated:

I actually think that the value of Tesla right now is… I mean the market’s being very generous, and they’re obviously giving us a lot of credit for future execution, so we’ll do our best to honor the faith the market has placed in us…. But I really feel like the valuation we’ve gotten, that we have right now, is more than, is more than we have any right to deserve, honestly.

It climbed even further after that, as institutional investors pulled out and retail investors kept buying.

But I think Elon’s statement really hit the nail on the head. A lot of people simply think that Tesla will one day (several years down the road) be on a similar level as GM.

Of course, some investors might have simply gotten caught up in the hype and ignored the math. While others were probably riding the wave until it started to take a downturn. That downturn began last week, resulting in a lot of those stock surfers and hyped up fanboys “jumping ship.”

But, sooner or later, things stabilize. At least for now, that seems to be the case with Tesla’s stock, which is actually up a bit from the $137.10 low it recently hit.

2) What should Tesla stock really be valued at?

Naturally, the question many people have is what Tesla stock “should” really be valued at. There is no perfect formula for figuring this out. Many assumptions and many factors come into play. I’ve heard some say $140, I’ve heard some say $100, I’ve heard some say $160… search around, read a lot, and take your own best guess if you are really interested in this.

3) Is is a good time to buy Tesla stock?

Lastly, getting to the meat of the matter, a lot of people surely want to know whether or not now is a good time to buy Tesla stock. No one can say for certain, but here are a few considerations and thoughts from this Tesla-obsessed blogger:

• If you think that Tesla will become a major automobile manufacturer in the long term, and if you are a long-term investor, then now is probably a pretty good time to buy. If Tesla continue to do well and grow, its stock price is sure to rise. Indeed, while Elon Musk indicated that the stock is overvalued now, he is convinced that it will go well over $200 eventually… and will deserve that.
• If you’re more of a short-term investor, or if you’re simply waiting for the absolute best time to buy, it’s a very hard call right now. There could be another steep drop in the future… or the stock may never go lower than it has in the past week. It’s hard to know. Who really knows?
• If you’re a short-term trader and are just wondering if the slide is over and the stock price will rise again in the coming months, it might be time to get (back) in there. It looks like that might be the case. But such short-term fluctuations are probably harder to predict than the long-term trends. So, if you’re in this game, I’ll just say “good luck to you!”

Do you have any other thoughts on Tesla’s stock price and stock roller-coaster?

Also see: Stock Analyst Encourages Apple To Buy Tesla. And be sure to keep an eye on all the hottest Tesla & Tesla stock news.