Tesla
stock soared on the potential for the company to be worth $4 trillion—a huge valuation it could only achieve years from now. Investors would probably be happy enough if the stock held its ground in the near term.
Tesla stock closed up almost $13 a share, or 6.3%, at $218.51 Thursday, while the
S&P 500
and
Nasdaq Composite
rose 1.9% and 1.8%, respectively.
One factor behind the gain is investor Ron Baron’s view of the electric-vehicle stock, expressed Wednesday and endorsed by CEO Elon Musk on Thursday. “I met Elon in 2010…he’s a mission-driven person,” the longtime Tesla bull said in a MarketWatch Interview.
Baron said he wasn’t sure Musk would be successful initially but became convinced around 2014 and started investing in Tesla stock.
“We’ve made about 20 times our money since then….we’ll make another five times in the next seven or eight or nine years,” Baron said. “We continue to work on researching the company all the time….we are convinced [other auto makers] cannot do what they are doing.”
That implies a market capitalization of about $3.5 trillion or $4 trillion based on recent prices. Tesla stock has been trading at roughly $200 a share, while a few weeks ago, it was above $250.
Musk tweeted that the valuation is possible if the company can “knock the ball out of the park several times.” The home runs Tesla needs are achieving fully self-driving technology, launching the long-awaited Cybertruck, and developing a lower-priced EV model.
investors aren’t thinking about the distant future these days. Shares have fallen from their recent highs both because Tesla reported disappointing third-quarter numbers on Oct. 18 and because a malaise is settling over the whole EV industry. EV sales growth is strong but decelerating, and too many EV models are hitting the market given current demand.
Baron is thinking years down the road. For now, what matters is whether the stock can remain at $200 or above. “Round numbers can be significant simply because they are easy to recognize,” said CappThesis founder and market technician Frank Cappelleri.
Cappelleri uses charts, rather than fundamental data about companies, to get a sense of investor sentiment and where stocks prices might go over the short and medium terms. Sentiment has been lousy, and $200 would be a good place for the stock to stop so investors can catch their breath.
“Yes [$200 is] a support level in that it’s the 50% retracement of the year-to-date uptrend,” said Fairlead Strategies founder Katie Stockton. Tesla shares have gone from roughly $100 to $300 at points over the past year. Whether a stock can hold its ground after giving up 50% of a gain is one indicator she watches to see what investors will do next.
Trading in Tesla stock is always a battle between bulls and bears, between hope for what might happen years from now and fear over what could happen in the short term. Baron’s comments and recent trading are just more examples of that.
Write to Al Root at [email protected]
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