Tesla Motors Inc (NASDAQ:TSLA) shares dropped as much as 3 percent on Tuesday, possible the result of a wind-down of the recent short squeeze. The stock remained somewhat steady on Monday and then in premarket trading on Tuesday it lost about 2 percent.
Making The Long Case For Tesla
If and when the short squeeze tapering ends, it still isn’t a good idea to short the stock according to Helix Investment Research, which outlines its view on Seeking Alpha. Of course it’s possible that Tesla Motors Inc (NASDAQ:TSLA) shares will not lose significant value at the end of the squeeze. Today could give us some important information about how much value the stock will lose.
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Using Amazon.com, Inc. (NASDAQ:AMZN) and salesforce.com, inc. (NYSE:CRM) as examples, Helix explains why shorting Tesla may be “a losing proposition in the long term.” The firm notes that the case it is trying to make isn’t one of why Tesla, like Amazon and Salesforce, is one of the most overvalued companies right now. It says there are other reasons to compare both companies to Tesla.
The Importance Of Institutional Investors In Tesla
As far as salesforce.com, inc. (NYSE:CRM) goes, they point to institutional investors as one of the most important keys to the stock’s success. Helix says they’re led by Fidelity, which owns almost 15 percent of Salesforce. The firm also says that these institutional investors are not selling their stakes, even though the company’s stock has climbed almost 880 percent from its initial public offering in 2004.
One of the problems with institutional investors is that they often hold large positions in companies like salesforce.com, inc. (NYSE:CRM). If they were to sell off a significant number of their shares, they would put some significant pressure on them, which would in turn make it nearly impossible to sell off the rest of their shares.
According to Helix, institutional investors owned more than 50 percent of Salesforce’s outstanding shares. Amazon.com, Inc. (NASDAQ:AMZN)’s biggest institutional investors owned almost a third of its outstanding shares. Tesla Motors Inc (NASDAQ:TSLA) falls right in between them, with institutional investors owning more than 40 percent of the company’s outstanding shares.
Tesla As A High Growth Company
And then there’s the fear of being left behind. Investors who are focused on growth love both Amazon.com, Inc. (NASDAQ:AMZN) and Salesforce because both of them have growth rates that are quite high. Also both companies played a major role early in the development of their industries.
The firm says with such a big percentage of shares held by institutional investors, it’s unlikely that Tesla shares will fall significantly because it’s doubtful whether they would sell their shares, not only because they don’t want to, but also because it would be difficult for them to do so.
Protection For Tesla Against Short Sellers
Helix then goes into how shares of Tesla Motors Inc (NASDAQ:TSLA) have some similarities with both Salesforce and Amazon in terms of how individual investors view them. The firm says these are companies investors believe in, and thanks to Tesla CEO Elon Musk and his ability to work the media, investors have come to believe in Tesla.
Like Amazon and Salesforce, Tesla Motors Inc (NASDAQ:TSLA) is setting out to change the industry it’s in, and the company’s story is one that individual investors can get behind. Helix also draws a comparison to Apple Inc. (NASDAQ:AAPL)’s story in 1997 when so many investors were betting against it. Of course the company managed to come back in a big way.
Tesla Management Has ‘Skin In The Game’
And then there’s the importance for management of any company to have some skin in the game. Musk himself said recently he would invest $100 million more of his own money in the company. This shows investors just how much he really believes in the company, and it’s similar to the top executives at Amazon and Salesforce.
Of course Tesla Motors Inc (NASDAQ:TSLA) will continue to be one of the most-debated stocks. Bears will argue multiples and overvalue, while bulls will argue that the company is ahead of the pack in terms of making over the auto industry. But this debate is yet another part of what makes a stock so great. If no one cared about it, no one would talk about it, and most investors do have something to say about Tesla. They either love it or hate it.
So which one are you? A Tesla bull or bear?