Is Elon Musk’s Bitcoin Bet Good For Tesla’s Stock?
Investing.com | Feb 16, 2021 09:33AM ET
Tesla's founder and CEO Elon Musk has proved his critics wrong multiple times. Among other things, Musk has become known for outrageous, sometimes controversial comments during interviews and via Twitter. Still, the shares of his electric car company have gained 400% during the past 12 months, making it the S&P 500's best performing company.
Last month, Tesla (NASDAQ:TSLA) reported quarterly results that marked a sixth straight profitable quarter and wrapped up a fiscal year that saw car deliveries touch 500,000 units, up 36% from the previous year. After witnessing one success after another, even some of Tesla’s most vocal bears capitulated, admitting they were wrong to recommend a 'Sell' on the stock.
“There is no graceful way to put this other than to say we got TSLA’s stock completely wrong,” RBC Capital Markets analyst Joseph Spak wrote last month. Evercore ISI analyst Chris McNally said he’s been:
“...on the considerably wrong side of TSLA for over a year now.”
Indeed, McNally almost trebled his price target on Tesla shares to $650. At the same time, Credit Suisse Group AG analyst Dan Levy doubled his target price to $800. The stock closed on Friday at $816.12.
These frank admissions by the sell-side community, however, don't obscure the fact that it’s still difficult to see the rationale behind some of Musk’s recent moves.
The one garnering the most attention currently is his recent bet on cryptocurrencies using Tesla’s cash to make the investment. In an quality and safety issues with its cars. China is a crucial component of Tesla’s growth story since revenue in the U.S. seems to have peaked, at least in the short-run.
Does this mean Tesla’s breathtaking rally is coming to an end after fueling a 1,000% acceleration in the value of its shares since March? Some analysts think so. According to RBC Capital Markets:
“Given the run in the name, an earnings ‘miss’, no specific 2021 guidance and potential supply constraints, we could see the stock take a breather. But, to long-term believers, there is likely little to deter their thinking.”
Their analysts now have a $725 per share price target on the stock.
Bottom Line
For investors who have held Tesla shares during this pandemic, the results have been eye-popping. However, that doesn't justify a founder risking shareholders' money on a highly speculative bet in a segment of the market that remains volatile and unpredictable. In our view, Tesla itself continues to be one of the most speculative stocks on Wall Street. That alone should warrant caution from anyone holding or trading it.
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