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What happened
Actions of Tesla (NASDAQ: TSLA) they were punched early Wednesday morning. The stock dropped to 7.4% at the start. At 11:45 am EST, however, it was only down 3.1%.
The big success of the title this morning was probably due to a tweet from well-known investor Michael Burry. The former hedge fund manager, known for predicting and profiting from the subprime mortgage crisis, said he is currently cutting Tesla stock.
Model 3. Image source: Tesla.
So
“So, [Elon Musk], yes, I’m short on $ TSLA, but some free advice for a nice guy … Seriously, you issue 25-50% of your stock at the current ridiculous price, “Burry tweeted.” This is not dilution. You would cement the permanence and an incalculable optionality “.
By exposing a stock, investors can make money when a stock falls. Of course, the reverse is also true: the investor can lose money on his short position when a stock goes up.
After a nearly 800% rise in Tesla’s share price over the past 12 months, the valuation of the rising stock is becoming difficult to justify.
Now what
Tesla will have to perform with near-flawless accuracy in the future to justify his assessment. In particular, the electric car maker will likely need to continue growing its vehicle sales at rates of 30% to 50% annually, demonstrate even faster growth in its nascent green energy business, and make substantial progress towards autonomous driving.
Despite the expensive valuation of the Tesla stock, investors may want to refrain from shorting the stock. Given the company’s stellar execution recently, betting against the automaker seems like a risky bet. After all, investors could easily avoid the stock entirely if they are not comfortable with the stock’s valuation. Furthermore, shorting is generally considered to be very risky and investors should make sure they fully understand the risks of shorting before doing so.
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