Schaeffer's Trading Floor Blog

Weekly Contrarian: Tesla's Positive Price Action Fails to Impress Wall Street

Outperforming TSLA remains swathed in bearish sentiment

by 12/27/2012 10:52 AM
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MarketWatch recently featured an article entitled "Tesla will need more loans to stay afloat in 2013." The author of the piece offered up a laundry list of reasons for the unprofitability of electric automaker Tesla Motors Inc (NASDAQ:TSLA - 33.87), arguing the company's faltering fundamentals could put it at risk of collapse in 2013. In fact, TSLA's total assets fell 24% in the first three quarters of 2012, leaving the Palo Alto, Calif.-based manufacturer with roughly six months of operating cash.

The stock's valuation is elevated at current levels, contends the journalist, strictly from the millions of dollars in direct loans the company received in 2012. In the near term, the equity could continue to post gains, as the re-election of President Barack Obama leaves the door wide open for continued access to these government subsidies.

The journalist believes the true direness of TSLA's financial status will come to light when the car concern unveils its fourth-quarter earnings report in mid-February. Wall Street is calling for a quarterly loss of 52 cents per share.


Technically, TSLA has had a solid run on the charts in 2012, with the shares adding around 18% on a year-to-date basis. What's more, the stock has bounced roughly 26% off its most recent low of $26.86, which was tagged on Oct. 15. The shares are currently consolidating into their 40-day moving average, above which TSLA has traded since early November.

The sentiment picture reveals a host of skeptics, though, as Wall Street remains unconvinced of the stock's sustainability. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 0.66 ranks higher than 80% of other such readings taken in the past year, meaning puts have been bought to open over calls at an accelerated clip in recent months.

A similar outlook is reflected in the bearishly skewed Schaeffer's put/call open interest ratio (SOIR) of 1.13. Not only does this show that put open interest outweighs call open interest among options with a shelf life of three months or less, but it ranks in the 67th percentile of its annual range. In other words, near-term traders are more put-heavy than usual toward the stock.

This glass-half-empty approach has spilled outside of the options pits, as well, where short interest accounts for a staggering 38.3% of the equity's float -- or more than 22 trading days' worth of pent-up buying demand, at TSLA's average daily pace of trading.

Meanwhile, four out of 11 covering analysts still believe the stock to be a "hold" or "strong sell," despite TSLA's impressive technical showing. Plus, the consensus 12-month price target of $37.08 represents a middling 10% premium to the stock's closing price of $33.59 on Wednesday, Dec. 26. The equity could benefit from contrarian tailwinds in the near term, should any of these skeptics follow in the footsteps of Needham, which upped its outlook on TSLA earlier this month. A better-than-expected earnings report could be the impetus needed to drive some speculators to the bullish camp.

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