| NEW YORK
NEW YORK May 14 The wave of short-covering that
drove shares of electric car maker Tesla Motors to huge
gains last week appears to have subsided, but there are still
plenty of investors willing to bet against the stock.
Tesla shares hit a peak of $97.12 on Tuesday, before falling
back, and are up nearly 50 percent since last Wednesday, just
before the company blew past Wall Street estimates to post its
first-ever quarterly profit.
The massive rally has come on increased volume and as
several analysts rushed to raise their price targets. At
Tuesday's closing price of $83.24 a share, Tesla is now more
overvalued than 98 percent of other U.S. stocks, based on a
Thomson Reuters Starmine screen of stock valuations. It was just
a month ago that Tesla shares traded in the low $40s.
In the last week, the price target of analysts on average
has risen to $70 from $50 a share.
The stock won a stamp of approval on Tuesday from Morgan
Stanley, which kept its "overweight" rating on Tesla and boosted
its target price on the stock to $103 from $47. Morgan Stanley
owns more than 1 percent of the stock and has done
investment-banking work for the company.
On the other hand, those confident the stock is way
overvalued are short about 17 percent of Tesla shares - even at
an annualized borrowing cost of about 30 percent, or 100 times
the borrowing cost of an average stock, according to Markit.
"Some of the short sellers have covered, there are plenty
more to cover and they've got a choice now: Do they stay in,
thinking it can't sustain the spike, or do they just get out and
take a huge loss right now?" said William Duff Gordon, research
director at Markit in London.
Those who are looking to short have some evidence on their
side - with a price-to-earnings ratio above 227, Tesla is nearly
30 times overvalued compared with other automakers, including
General Motors, Ford and Porsche,
according to Thomson Reuters data.
Excitement over the company's first-ever profit helped fuel
a sharp rally in the stock that caught short-sellers betting on
declines. Trading volume spiked to more than 28 million shares
on Thursday, a record, and on Tuesday to more than 37 million,
again a record.
Some of the recent gains have come from short sellers
covering their bearish bets. Shares outstanding held for short
bets fell from more than 20 percent before Tesla reported
earnings to 17 percent on Monday, according to Markit data.
"It appears the shorts are still around in the sense of
short-term players," said Frank Davis, director of sales and
trading at LEK Securities in New York. "The institutional
players, though, less of those are resetting (their short bet)
at the higher levels."
After three days of the stock's opening near its lows and
closing near the day's highs, shares ended down 5.2 percent on
Tuesday, which suggests the short-covering rally had ended.
Recent activity in Tesla suggests it has become a momentum
crowd stock, similar to Netflix or, in years past,
Green Mountain Coffee Roasters. These types of
companies generally come out of innovative industries, or
sometimes fads, and boast increasing revenue. The stocks tend to
rise sharply on increasing trading volume, and as a result,
attract bets against them.
"It's a precarious situation because the price has spiked so
much, but people might be patient and stay there," said Gordon
Two of every three Tesla shares available for loan are still
being borrowed, indicating there are many betting the recent
rally will reverse and the stock will break down.
"Many industry players and market observers have been
waiting for Tesla to fail since it went public in the summer of
2010," said the Morgan Stanley note.
"They may need to be waiting for a very long time."