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Tesla CEO Elon Musk
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Tesla shares are up almost 600% this year, surpassing Warren Buffett’s Berkshire Hathaway BRK.A, -1.06% with an eye-popping $555-billion valuation that dwarfs all car-making rivals.
But the long-suffering Tesla shorts, who have taken a bigger cumulative hit than any other group of short sellers, according to S3 Partners data, just keep shorting.
Count Bradford Cornell of Cornell Capital Group, a boutique investment firm based in Southern California, among those struggling to wrap their brains around such a relentless push higher.
He took a small short position on Tesla last week.
“The stock has already reached ‘ludicrous speed,’” he told clients in a post on Monday. “Never a stock that traded on the basis fundamentals, Tesla’s stock has become so divorced from the underlying economics that it now exists in a kind of valuation twilight zone.”
Cornell pointed to two events — Tesla’s inclusion in the S&P 500 SPX, -0.46% and the stock split — as the driving factors in the explosive stretch this year.
“Tesla added approximately $250 billion, more than the total market capitalization of all but a handful of American companies, on two announcements that had nothing to do with company’s ability to profitability produce, sell, and service cars,” he said.
So where is Tesla TSLA, -3.10% headed now? Cornell Capital analyzed three valuation scenarios: a base case, a bear case and a bull case.
Their base case allows for continued rapid growth and industry-leading operating margins. If that happens, Cornell sees an implied stock price of $144.71, which he said “represents one of the largest gaps I have ever seen for a major publicly traded company.”
The stock is currently trading at $567.60.
Then there’s the bull case, which really isn’t all that bullish. Assuming faster than expected growth and unprecedented margins, Cornell’s rosiest view puts the stock barely above $300.
Finally, their bear case sees the stock dropping almost $500.
“In short, the analysis suggests that Tesla is not just overvalued, it is unhinged,” Cornell wrote. “In this respect, it is worth noting that if Tesla were to drop all the way to $72.71, its market cap would still be greater than that of General Motors GM, -2.70% even after GM’s recent run-up.”
For a deep dive into Cornell’s analysis, check out this video:
Tesla shares followed the rest of the market into the red in Monday’s session, down 3% while the Dow Jones Industrial Average DJIA, -0.90%, Nasdaq Composite COMP, -0.05% and S&P 500 all closed lower, as well.
