Tesla shares continue to push to new all-time highs, taunting the company's bears. As Elon Musk critics throw in the towel, the stock could top $2,000.
How crazy has the rally in Tesla stock (NASDAQ: TSLA) gotten? Even Elon Musk critics – and other bears who expect the stock to eventually fall – recognize that shares still have short-term upside.
Shares of the electric carmaker topped $1,400 today, pushing the one-year returns up to 450%. Shares are up 50% in the last month alone.
Following the company’s expectation-beating production numbers last week, bulls see an unending parade of higher prices ahead.
Elon Musk’s most ardent critics do not, although even Tesla bears are starting to concede that this rally has legs.
Analysts at both Barclays and Morgan Stanley have warned on valuation to the point where they’re considered bearish on shares. They still maintain the stock is expensive after last week’s production results.
Morgan Stanley raised its valuation from $650 to $740, or about half of where shares currently stand. Barclays has a $300 price target on the stock. Shares would need to plunge over 75% to hit that price.
Barclays analyst Brian Johnson outlined this brutal assessment in a note to clients:
We believe the stock market has done more than a good enough job discounting the opportunity and, we believe, has not sufficiently discounted the associated risks.
Those are long-term estimates based on a struggling economy for the rest of 2020. In the short-term, it’s anyone’s guess.
Morgan Stanley analyst Adam Jonas is confident Tesla stock will eventually careen to its “fair” value below $750. Don’t load up your shorts just yet, though.
Jonas believes speculators could drive TSLA as high as $2,070 before the other shoe drops. That implies a temporary upside of nearly 50%.
One heavily-watched trend with Tesla shares is short interest. The volatile – and divisive – company has always attracted skeptics willing to bet against the stock and go short when prices seem out of valuation.
They’ve often paid dearly.
Even after impressive results and taunts from CEO Elon Musk, the shorts haven’t thrown in the towel. Approximately 28% of the company’s float is still held short following a dizzying bull run.
That’s a high enough level to spark a short squeeze.
That’s what happens when rising prices of a stock force anyone short shares to do one of two things. They can either put up more capital to cover their position or buy shares on the open market to cancel out their short trade.
If Tesla stock continues to float higher and an investor with a substantial short position tries to cover quickly, they could ignite a cascade of liquidations.
With bearish analysts beginning to throw up their hands in frustration, one thing is clear. If Tesla stock does smash through $2,000, short-sellers will only have themselves to blame.
The irony is that once the bears inevitably capitulate, conditions will finally be ripe for the sharp drop they’d been waiting on all along.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.
Last modified: September 23, 2020 2:03 PM