Is Tesla Inc. (NASDAQ:TSLA) stock headed higher? Wall Street commentary is turning bullish even as TSLA stock short-interest has declined to a one-year low.
Shareholders of Palo Alto, California based Tesla Inc (NASDAQ:TSLA) have been having a merry time. Tesla stock is up by 80% over the last one year and has turned every dollar invested at the time of IPO into more than $18 today. These are returns which would make any investor happy. However, recent troubles on the Model 3 front have led to a pullback in the stock, to the $350 a share level. The recent correction raises the question; Is now a good time to buy Tesla stock?
First, The Bad.
Model 3 was supposed to bring Tesla its 'iPhone' moment. A moment which would send the stock rocketing higher as Model 3 hit mass production. As we had written earlier, there was a huge divergence between what Tesla was projecting and Wall Street was expecting. Looks like, Tesla was overestimating, and by a huge margin. In an announcement earlier this month, Tesla announced an 80% shortfall to its Q3 Model 3 production guidance of 1500 units a week. Given the cash-guzzling machine that Tesla is, the rising debt levels and no sign of profitability, a miss on Model 3 numbers is extremely worrisome.
To complicate matters, Tesla also announced a delay in the launch of its semi-truck, in order to focus on Model 3 production. Turns out the markets weren't too impressed as Investors sent Tesla stock lower. The big miss raises questions with respect to the Elon Musk-led company's ability to execute on its vision. As Charley Grant writes in the WSJ, "Tesla stock is valued as though the company can execute on its vision flawlessly. The facts suggest the opposite."
Tesla Stock Gets Some Wall Street Love
Let's now turn our attention to some recent positives for the electric vehicle maker. In stark contrast to the Model 3 and semi-truck timeline miss, recent Wall Street commentary has been surprisingly bullish. Morgan Stanley analyst Adam Jones, who had raised questions about Tesla's Model 3 ramp up targets not too long ago, had more encouraging words this time around. The analyst hiked his price target on Tesla stock by $62 to $379 a share, citing the company's "rapidly growing infrastructure footprint as a key differentiator." The updated price target implies an upside of 7% to the last closing price of Tesla stock.
Short Interest At One Year Low
The bullish commentary from the Morgan Stanley analyst also coincided with another positive news for the Tesla bulls. Based on the latest short interest data, for the September 2017 ending reporting cycle, short interest in Tesla stock fell to 26.047 million shorted shares. Short interest is an indicator of investor sentiment. While an increase in short interest indicates increasing bearishness, a drop in the short interest levels reflects a rising bullish sentiment.
The latest Tesla short interest number represents a 9.7% drop from the previous reporting cycle. The short interest in Tesla stock has dropped to a one year low, which implies that investor sentiment at this counter is turning positive. Also, investors need to look at the days to cover metric. The higher the days to cover, the greater is the chance of a short squeeze. With the days to cover coming in at 4.32 in the latest reporting cycle, any rally in Tesla stock price could lead to a short squeeze, which could add fuel to a TSLA stock rally.
Tesla Stock Technicals
Tesla bulls will also be quick to point out the encouraging Tesla stock technical chart, which offers some insights into where Tesla stock might be headed in the near term. Tesla stock has climbed over key trend lines: the 50-day and 100-day simple moving averages. TSLA stock is now facing resistance from the 20-day SMA, which is less than $2 higher than the last closing price. Can TSLA stock take out this resistance level?
If the Moving Average Convergence Divergence (MACD) indicator is anything to go by, Tesla stock is headed higher over the next few trading sessions. The MACD is a popular momentum indicator used by technical traders has a flashed a bullish centerline crossover for Tesla. The MACD line rose above the '0' centerline, implying near-term upside for Tesla stock. An upward move from here could see Tesla stock breach the key resistance at the 20-day SMA. Hence, investors looking to buy into Tesla should keep a close eye on the crucial resistance level.
To sum up, multiple positives have emerged for Tesla stock over the last few days. Positive wall street commentary, bullish investor sentiment and the possibility of a short squeeze make, supported by an encouraging technical set up make now a good time to bet on Tesla. However, investors should remember that, at the current valuations, Tesla is a stock priced for perfection and any further slip-ups on the Model 3 front could send the stock spiraling lower. In other words, Tesla remains a high-risk bet.
Looking for fundamentally strong technology stocks? Check out Amigobulls' top stock picks from the tech sector, which has beaten the NASDAQ by nearly 160%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by over 291%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.