Schaeffer's Trading Floor Blog

Weekly Contrarian: Tesla Motors Inc (TSLA) Still Plagued By Pessimism

TSLA has been defying the skeptics for months

by 6/12/2013 1:14 PM
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The shares of Tesla Motors Inc (NASDAQ:TSLA) have almost tripled in 2013, thanks to a heap of encouraging fundamental news, and a subsequent short squeeze. However, even with CEO Elon Musk -- who's been compared to a superhero -- at the helm, a lack of stronger, less costly batteries could come back to haunt the bulls, according to a recent Barron's column.

"The towering expectations now priced into the stock don't account for the Grand Canyon leap that Tesla must make to reach its goal of cutting its car's $90,000-plus sticker price in half," opines the author. "Electric-car batteries cost a heck of a lot, and today's Tesla Model S owes its better-than-200-mile range to batteries costing tens of thousands of dollars."

In addition, the columnist highlights a few more challenges facing Musk & Company. "Tesla is an affluent suburbanite's car," so selling to city folk -- especially in Europe -- could remain challenging. Furthermore, "The zero-emissions credits that subsidized Tesla's recent expenses will go away this year," and "Tesla will need to sell hundreds of thousands of cars per year to support its stock price" north of $100, which seems unlikely.

In conclusion, goes the article, Tesla will undoubtedly establish itself as a valuable brand -- albeit likely a semi-luxury one -- on Musk's watch. "Tesla stock, therefore, has a floor at whatever price a giant like Daimler might pay to buy the company We suspect there'd be plenty of buyers at $50."

Contrarian Perspective

If TSLA has proven anything over the past few months, it's that it's good at defying the skeptics. What's more, there are plenty of bears still doubting the shares, which should entice contrarians, as this suggests ample sideline cash to fuel further gains.

Despite outperforming the broader S&P 500 Index (SPX) by 156 percentage points during the past 60 sessions, TSLA remains plagued by pessimism from all corners of Wall Street. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.91 stands higher than 80% of all other readings of the past year. Or, in simpler terms, options buyers have picked up bearish bets over bullish at an accelerated clip during the past couple of weeks.

As such, TSLA's Schaeffer's put/call open interest ratio (SOIR) of 1.71 indicates that puts nearly double calls among options expiring within three months. Plus, this ratio registers in the 93rd percentile of its annual range, implying that near-term options traders have rarely been more put-heavy during the past year. A mass exodus of option bears could add contrarian fuel to the fire.

Meanwhile, more than one-quarter of Tesla Motors Inc's (NASDAQ:TSLA) total float remains dedicated to short interest. As the remaining skeptics hit the exits, TSLA could enjoy more upside.

Finally, three out of 11 analysts maintain "hold" or worse opinions, while the average 12-month price target of $74.30 represents a serious discount to TSLA's current price near $99. Additional upgrades and/or price-target hikes could also amplify buying pressure on the outperformer.

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