The Journey To Utopia, Tesla Style

Apr 23, 2014   //   by Profitly   //   Profitly  //  Comments Off on The Journey To Utopia, Tesla Style

Tesla Motors ($TSLA) had an outstanding year last year. It was up more than 350%, that’s outstanding even by Profitly standards where we have massive trades with huge percentage wins. Even so far this year it is up more than 30% while the S&P 500 is only up about 1%.

So should you still buy the stock or is it too late? That is a question that has come up quote a bit lately, especially when the stock fell below $200 this past week. That is seen as a key level for the stock, and Tim often points out that big, round numbers are often important. It’s also important to point out that stocks like Tesla are hard to value, since so much of it is based off of speculation for the future rather than hard numbers with more established companies like P&G or McDonalds.

There was a great post by Josh Brown of The Reformed Broker earlier this week titled, “A funny thing happened on the way to Utopia.”

Here is a chart that he made of the stock dating back to the beginning of 2014.


As you can see, there was a big spike on February 25. That’s because Morgan Stanley drastically raised their price target for Tesla to $320 from $153 that day. The analyst covering TSLA for Morgan Stanley is Adam Jonas. In his note, he said “Tesla’s quest to disrupt a trillion $ car industry offers an adjacent opportunity to disrupt a trillion $ electric utility industry. If it can be a leader in commercializing battery packs, investors may never look at Tesla the same way again.”

If you look at Profitly, there have been more than 3,000 trades on TSLA with 2,385 winners, 1,511 losers, an average gain of $663 or 13.19% and total profits of more than $850,000. The largest gain was from LX21 at $49,632 on August 29.

But Tesla is a lot like 3-D printing in that there is some speculation riding on the stock, which brings risk. If the company does in fact figure out how to store green energy at a low cost, then that is a complete game changer in the auto industry. And if they then master the self-driving car, that brings the Utopia. Here is a video link to the self-driving car concept.

Here is the chart that Morgan Stanley made for Tesla’s path to Utopia.


The analyst at Morgan Stanley went on to say, “Beyond the practical benefits, we estimate autonomous cars can contribute $1.3 trillion in annual savings to the U.S. economy alone, with global savings over $5.6 trillion. There will undoubtedly be bumps in the road as well, including the issues of liability, infrastructure, and consumer acceptance. However, none of these issues appears insurmountable.” He then suggests through various charts that the Utopia could be reached by 2026. We could see far more in terms of gains if this is the case, but Business Insider correctly points out that these types of comments from Wall Street are often signs that we are closer to the top of the market than the bottom.

Josh Brown also points out that “investing based on this kind of thing is portfolio poison. Because eventually, valuation matters. And once it does, wishes and hopes and wild-eyed optimism about the future begin to get discounted really quickly.”

Profitly gurus like Tim often point out that evaluating your risk to reward ratio before entering a trade will help you become more profitable. If you have an equal upside and downside, it probably isn’t a good trade. But if there is far more upside potential than downside potential, it is a great trade. With stocks like Tesla, you have to look for technical levels to evaluate where the stock may be headed. Sure, it could have a huge upside, but it has also run up a lot, as we pointed out in the first part of this post. So if you do want to buy this stock, do so when it is holding support, rather than when it is failing to break out of its resistance.

Use tools on Profitly like stock searches to find out what other traders are saying and doing. Are they shorting it, buying it, staying out of it? Then maybe you can connect with other traders that are looking at the stock and see what is catching their attention. Why are they bullish or bearish? Is it a technical pattern, news that just came out, or something else?