Tesla Motors Inc (NASDAQ:TSLA) enjoys great support from its investors, but many of them may have almost zero rationality and are hoping for way too much in the form of returns from the company, without actually conducting proper research, says a report from Seeking Alpha by Kiran Pande.
Though there is absolutely no doubt about the capability of Tesla’s leader, Elon Musk, nor doubt over its unmatchable products, there has been a lack of reasoning when it comes to expecting wild gains from the company.
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More
Investors mesmerized with Tesla’s success
There are investors who have stuffed large amounts of cash into their brokerage houses to buy Tesla Motors Inc (NASDAQ:TSLA) stock—people who are assuming that their speculations, not based on any concrete research, are good, and that Tesla Motors Inc (NASDAQ:TSLA) can overcome all the hurdles to earn profits. Mesmerized with the achievements of Steve Jobs and Mark Zuckerberg, these investors think that even the slightest progress made by Tesla is enough incentive for them to run behind the stock.
Revenue not the only factor
Revenue is the root cause driving Tesla’s stock price higher. Investors are enchanted with the volume of dollars that the company can drag, which prevents them from realizing how much is actually left after paying off all the bills. Too much fascination with tracking revenues is not good, and the writer has backed up his point with a very good explanation.
Investors need not go very deep to realize that seasonal changes always affect consumer companies. This is the reason why quarterly revenue is compared year-over-year rather than back-to-back. A common strategy that demonstrates the close correlation between quarterly revenue and price is shorting the company before the sluggish season, at a time when puzzled investors will go for selling the stock. Seasonal changes for Tesla Motors Inc (NASDAQ:TSLA) have yet to become clear, and will affect the company more when the company reaches maturity level.
How to balance a portfolio with Tesla in it
Investors can adapt a strategy of investing in suppliers or probable supplying companies of Tesla Motors Inc (NASDAQ:TSLA). BorgWarner is one such supplier as it is the best dual-beta stock in the whole consumer cyclical segment. Borgwarner has 55 times higher upside beta compared to its downside beta.
Tesla may continue taking great leaps towards profit, and BorgWarner Inc. (NYSE:BWA) will surely benefit from that. On the other hand, BorgWarner will not lose much of its value if Tesla fails or sinks. This strategycan prove to be sound without falling prey to irrational investor strategies.