Who likes Tesla (Tesla Stock Quote, Chart, News NASDAQ:TSLA)? Millennials who lost their jobs in the COVID-19 crisis, apparently.
The electric vehicle-maker has seen its share price yo-yo perhaps like none other during the pandemic, where its mid-February cresting of the $900 per share mark foretold a dramatic free-fall to as low as $350 by mid-March —only to see the stock take off again to now above $900.
The dizzying volatility is the result of a massive influx of retail money, with millennial investors leading the charge and betting on a stock that has high growth potential but still a lot to prove, according to Jason Mann, chief investment officer at EdgeHill Partners.
“There’s no question it’s a speculative stock, it’s a story stock,” says Mann, who spoke to BNN Bloomberg last Thursday.
“There’s really no valuation underpinning that you can apply to Tesla that makes a whole lot of sense,” he said. “Let’s call it the Robin Hood phenomenon: you’ve got a whole bunch of relatively new investors, call them millennials, if you want, that have been rabid buyers of stocks like Tesla. It’s very much a cult stock, and that phenomenon has actually spread well beyond Tesla.”
“If you look at something like a Virgin Galactic or a DraftKings in the US. These are relatively speculative businesses they don’t cashflow yet for the most part —and they may never cashflow— but there is an army of retail buyers who in many ways have bought this dip better than the professionals so we can’t we can’t blame them for doing what they’re doing,” Mann said.
Tesla’s profitability has been a question mark since Day One, with many doubting the company’s ability to compete in a tight market filled with automakers who while momentarily being Tesla in terms of electric vehicle development are nonetheless doing their best to catch up quickly.
But Tesla posted a profit of $386 million in its final three months of 2019, for many believers a sign of things to come as the company finished the year with revenue of $24.6 billion. (All figures in US dollars.)
And while market penetration has also been a question mark for Tesla, new data this week suggests its plans to deliver bit in the Chinese market are now panning out, with Tesla being listed as the top-selling new-energy vehicle for the month of May in China, with sales of over 11,000 units. Shares of TSLA rose sharply in Monday trading on the news.
Mann said even though Tesla’s mercurial rise has little in terms of fundamentals to back it, it’s nevertheless tough to bet against the new investment dollars being spent on the name.
“You know, you put 40 million people at home, unemployed, you give them $1200 stimulus cheques and then you give them free commissions, you’re bound to see a spike in this type of speculative activity,” Mann said. “And that’s exactly what we’ve seen in the numbers if you look at the E-trades and the TD Ameritrades of the world: off the charts in terms of new account openings and the trade volumes that they’re doing.”
“But you really can’t fight it, these types of stocks. We look at stocks on three metrics: what’s its trend, what’s its valuation and how volatile is it?” Mann said.
“These types of stocks like Tesla have extremely strong price momentum, so even though they’re expensive, we wouldn’t stand in the way of that. We wouldn’t own it because it’s not our style and we’d want to see a more reasonable valuation, but we also wouldn’t short it,” Mann said.