Two weeks ago we discussed the stock of Tesla (TSLA) . The company, which is not expected to report earnings again until late January, had been buoyed at that point by news that it was to deliver 15 electric battery tractor trailer semis to PepsiCo (PEP) as part of a "zero emissions" project that Pepsi had planned to engage in (due to grant money) at its Frito-Lay facility in Modesto, California. There were also headlines swirling at the time over a potential slowdown at the Shanghai, China facility.
Our question, however, was simple. We wanted to know if one person, no matter how brilliant or how talented, could actually manage to run Tesla, SpaceX and Twitter (TWTR) all at once and stay focused on all three companies sufficiently enough to lead them well? We had never seen anything like this before. Jack Dorsey had run Twitter and Block (SQ) simultaneously, and I don't think too many folks thought that went well. This would be even more difficult.
Twitter and Block are both technology firms, though different in many respects. Twitter, SpaceX and Tesla are all technology-based firms, but also heavily involving many qualities and characteristics of firms in the industrials and aerospace fields.
At That Time...
TSLA was trading with a $194 handle. The stock closed on Friday afternoon at $150.23. While acknowledging that the stock was in a year-long downtrend, we thought that the stock could tread water for some time with its strong cash flow and strong balance sheet. We had said that we would need a discount, perhaps something in the mid-$160's in order to wet the beak. Well, we waited until this morning.
The Poll
There is no denying the turmoil over Twitter, whether you are a supporter of Elon Musk or not, that has been the social media medium since he overpaid ($44B) for the firm. While there has been plenty of "good", such as having to deal with far fewer bots for those on the service, Twitter has laid off about half of its staff and there is a political side to things that I will not get into here. The politics, though, does cost in lost advertisement. That too, though, cause issues to both Musk and the business, as well as for his other businesses.
Tesla shareholders have felt that Musk was not focused on Tesla, which is the only publicly traded company among the three. The plummeting stock price, whose descent has accelerated over the past two weeks in part due to sales made by Musk himself could be used as evidence.
Musk decided over the weekend to launch a poll of his Twitter following...
'Should I step down as head of Twitter? I will abide by the results of this poll.'
There were 17,502,391 votes cast with 57.5% in favor of Musk stepping down. Who would replace Musk? Is he bound by the results of a Twitter poll? Musk did tell a judge in Delaware last month that he planned to reduce his time at Twitter and find someone else who could run the business.
Back to Tesla...
For the current quarter, Tesla is expected to post adjusted EPS of $1.26 on revenue of $26.2B. Should consensus prevail, this would come to earnings growth of 57% on revenue growth of 47%. Yes, in a quarter where the S&P 500 in aggregate is expected to post an earnings contraction on roughly 4% revenue growth.
I purchased a small position during the pre-opening session on Monday morning, partly in expectation of a positive TSLA reaction to the results of Musk's Twitter poll, and partly in expectation of a potential early week rally off of market-wide short-term oversold conditions.
Certainly nothing has happened of late to make one think that a change in trend would be imminent. Let's zoom in for a closer look...
There is no overt technical support to cling to. This is a trade, not an investment and this is clearly speculative in nature. For that reason there is no pivot. My target would be the 21-day simple moving average at $176, which would return 16%.
My panic point? I'll use the old 8% rule. For those who are new to me, I refuse to ever lose more than 8% on any position, unless it happens while I am sleeping. An 8% loss for me here would force a sale at $140.
So, is it $176 or $140? Not exactly. I am far less strict with target prices on trades than I am on investments, because to make an investment, I must have a higher level of conviction. I am willing to take a smaller profit than my stated goal. I will, however, allow the stock to lose my 8% before cutting and running.
(PepsiCo is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells PEP? Learn more now.)
