Tesla (TSLA) stock plunged viciously yesterday, as Twitter (TWTR) users voted "Yes" to Elon Musk's poll of whether he should sell 10% of his shares. Indeed, it was a peculiar move that caused shares of the EV giant to crater 12% in a single session.
As the stock is now well off its highs, previous Tesla short Dr. Michael Burry may finally see the type of decline that he previously called for.
Yes, the valuation remains unfathomably high, even after the sudden Musk-induced correction. As such, I remain bearish on TSLA stock as fans of Elon Musk may continue to follow in the man's footsteps, taking profits off the table after many years worth of marvelous gains. (See Analysts’ Top Stocks on TipRanks)
The stock has gotten too hot, too fast, and many analysts covering the name are struggling to catch up with their price targets. At writing, the consensus estimate of $850 and change calls for more pain ahead. Undoubtedly, competitive pressures don't bode well for the EV kingpin, as the stock looks to surrender more of the gains it posted this year.
Rivian Hype and Future EV IPOs Could Add to Tesla Stock's PressuresThere's a lot of hype surrounding the Rivian IPO, thanks in part to a sizeable 20% stake by e-commerce behemoth Amazon.com (AMZN). Indeed, many Tesla bears touted increased competition in the space for years.
With more new issues likely to come flowing in, there will be a growing case for swapping one's Tesla shares for the latest IPO. Such rival pressures have mostly been muted by true believers in Elon Musk.
With Musk beginning the trimming process after multi-bagger gains though, Tesla stock may finally shed a key factor that's supported its stock for many years.
While the reason why Musk would take to Twitter for such a multi-billion-dollar decision remains unclear, some speculated that Musk was willing to pay billions in capital gains taxes to show the masses that he's more than willing to pay his fair share.
In any case, investors shouldn't try to catch the bottom for Tesla unless they're willing to average down and face even more pain that could be in the cards going into year's end.
Wall Street's TakeTurning to Wall Street, TSLA stock has a Hold consensus rating. Out of 23 analysts, there are 10 Buys, six Holds, and seven Sell ratings.
As for price targets, the average Tesla price target of $850.24 implies 19.5% downside potential. Analyst price targets range from a low of $215 to a high of $1,400.
What About Tesla's New Knack for Crushing Quarterly Earnings?Just because Elon Musk is trimming his stake doesn't mean that Tesla's knack for beating quarters will be coming to an end. The company clocked in three solid beats, and the streak could very well continue into the fourth quarter.
With a bar that's quite high and a valuation that likely prices in more than perfection though, it's entirely possible that the stock could continue trending lower, as many momentum chasers in the name are likely just in it to make a quick buck.
Moreover, Elon Musk may sell even more shares moving forward, a real risk, given his tweets have applied negative pressure on TSLA stock in some instances in the past. At around 28 times sales, I remain on the sidelines. We all know Elon Musk is a genius. Perhaps his decision to begin trimming at these heights is just another stroke of his genius.
Disclosure: Joey Frenette owned shares of Amazon at the time of publication.
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