Answering the question “Should I buy the TESLA Stock”
Reasons for the Tesla stock going down
If you go to google and type TESLA Stock price you will come up with something like this
You might ask yourself ,why the dip ? Why is it going down. Tesla is a good company with a great future but auto motive industry is a hard business to be in ,and Tesla is getting their first taste of that medicine. I’m not saying that Tesla is a bad company or it hadn't made any money , they have had a good run but sales are surprisingly low (still making profits ) and hadn’t meets its investors expectations compared to the hype its gotten in the previous months.
Why did the dip happen ?
Every stock goes through corrections or crashes during their life span . I personally believe that Tesla is a great company and can achieve many great triumphs in the future. But performance of a stock price solely depends on whether the company makes money or not . Tesla is making money but not enough money to keep its investors happy ,that’s why the current dip occurred because people were unhappy with their earnings .
And when whales sell (Ron Barron recently sold 1.8 million shares with an average price of 660) ,other retail investors go into a panic selling mode which results in major corrections like this one
35% in just few weeks ,the market were indecisive at first you could see the market has gone sideways for a couple of days after hitting a whopping $900 dollar price target ,at this point everyone was assuming that Tesla is destined for the moon, and once their financial reports came out and after the bond yield news, people decided to take their profits out which resulted a massive sell off. If you had bought at that $900 dollar mark without a sane justification and you bought it because you heard it at the bus stop ,you are an idiot and I have no sympathy for you.
This software I use is called TradingView.com its a free software that allows you to do technical analysis on stocks ,crypto ,commodities and many more https://www.tradingview.com/ (theres a paid version too but i currently use the free version)
Will it go further down ?
I honestly have no idea of markets direction and I don’t think neither does Warren Buffet ,there is no point of timing the market as no one can tell whether the market is heading. Future is uncertain ,and that’s why when we trade or invest we have to be educated and well versed without throwing our hard earned money at something we don’t understand or because some guy at the bus stop told you to do so . It is vital that you do your research (Technical and Fundamental) before you jump in to the market.
As you can see in the picture I have done a Fibonacci retracement (its the tool that gives you those rainbow like colors) For those who don’t know what Fibonacci Retracement is ,in layman’s terms it show where the stock my come down to after having a major run. When drawing the Fibonacci you take one pointer and put it to the lowest point of the stock in this case that 2020 March Low and then take the next point to the highest point of the of the stock in Tesla’s case its the $900 mark. The levels that we see 0.236 , 0.382 and 0.5 are psychological levels that the market might retrace to after having a run . The idea is to place your trades at these levels before the market takes its run up again .
Where should I enter the Tesla Stock ?
Firstly we do not know that this is a correction or a crash . For this stock to have any sort of silver lining it should finish the day with a green candle and currently stochastic and MACD indicators are showing that the momentum of the stock is heading down.
I would not personally put my money at this current moment. I would wait for more confirmation
Will it go Down to zero
I personally don’t believe that Tesla is a bad company that deserves a “0” valuation . But I also think that it certainly doesn't deserve a $900 dollar valuation either in the current period . I personally believe that Tesla’s correct valuation should be somewhere around $400 and $500 .
How did I come up with that $400 Valuation ?
To come to this valuation which I think is fair I considered few things
Firstly ,we have to get an idea of how other companies in the sector work and operate compared with Tesla .
EPS (Earnings Per Share )
While there are many aspects to consider EPS (Earnings Per Share ) is a major indicator that I use before buying into stocks ,and I make sure to compare the EPS of a certain company with other companies in their sector . Earnings Per Share is widely considered to be the best measure of a share’s true price because it shows you how much of a company’s profit after tax that each shareholder owns. Usually a higher EPS tends to be good indicator and a good company should have an EPS constantly growing . Stocks with EPS growth rates of at least 25% compared with year-ago levels suggest a company has products or services in strong demand.
Teslas’ current EPS is still 0.64 . As see in this chart
Toyota’s EPS is the only thing that has grown consistently in a 10 year duration. Does that make Tesla a bad company ? Compared to Toyota absolutely No,they have decades of experience in the industry and they have solid earnings to justify their EPS ratio . That’s why I said paying $900 dollars for Tesla instead of Toyota at this moment is utterly ridiculous.
P/E Ratio (Price to Earning)
In essence, the price-to-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. This is why the P/E is sometimes referred to as the price multiple because it shows how much investors are willing to pay per dollar of earnings. If a company has a high P/E, investors are paying a higher price for the stock compared to its earnings. Usually we have to take the sector PE ratio into an account if a company’s PE ratio is higher than the sector PE ratio we could clearly conclude that the stock is overpriced , in Teslas case their PE ratio was 938.52 and thats way above when compared to the entire automotive sector PE ratio is 164.47. This means that investors are paying a higher price for the stock , Which is not a bad thing but given how low Teslas earnings that price is not justified .
Debt and Liabilities
Tesla has massive debt , as you can see their liabilities have gone up to 52 billion dollars and their total debt (excluding vehicle and energy products) has reduced to 6.2 billion dollars but still it is higher . I personally believe that this is not bad news although ,it still an important factor to consider before buying into any company ,this much of liabilities should be accounted for $900 dollars. Because if I’m paying $900 dollars per share they should have lesser liabilities and much lower debt.
Furthermore, I have to mention their free cash low is good but not better as the hype they received ,they somehow managed to maintain a considerable amount of a cash flow from their income generating activities which will allow them to make more improvements and invest in new ventures.
What is a good price to enter for Tesla
Elon Musk also said that he is considering doing a merger between Tesla, Space X and Hyperloop and if that happens Tesla will become one super company . But at the current moment $400 dollars to $500 dollars would be a fair price because they have so much to improve and beat expectations in terms of sales and revenue ,and I am excited to see where their new MC trucks will take the companies earnings in the future as well .
I personally believe that Tesla has a great future and corrections are common with every stock. I do not think this is the end for Tesla but you’ll see more selling action towards the coming week . Recently, billionaire investor and CEO of Baron Capital sold 1.8 million shares of Tesla but he goes on to saying that in the long term he thinks Tesla will reach $3000 dollars even $4000 dollars ,but it is in the long run . https://www.youtube.com/watch?v=bi_boGbVHAw
I’m personally am thinking of entering Tesla at around 500 dollars to 400 dollar mark if it goes further down.But we are currently at a good buying price as well .If you are in it for the long run you can jump right in. But I’m a perfectionist so i wait for the perfect opportunity ,but the company has to progress much better and it has a long way to go compared to its other peers in the sector .