Usually, I’m not an advocate of selling long-term holdings, but Tesla (TSLA) rose so high so fast I got a little dizzy. TSLA has been on a massive run which has gone parabolic recently, rising by more than 50% over the past month.
After breaking out from its previous all-time high of around $900 hit back on 25th Jan 2021. TSLA is now trading around $1222 (as of market close of Friday 5th Nov 2021), which is almost 40% above previous ATH and a whopping 120+% from its most recent low of $550 on 19th May 2021.
Note: In these short posts, I’m sharing my quick and unpolished thoughts on short-term trends or recent developments without much in-depth analysis.
What’s next for Tesla?
After such a dizzying run, I’ve been asking myself whether this huge price rise over such a short time is sustainable. Are we due for a correction? As they say, the higher they rise, the faster they fall.
The best case scenario I think would be the stock price stabilising at this level and enter a consolidation for the next few months before making the next move higher.
Zooming out, we can see that previous price surges were usually succeeded with declines, presumably as traders take some profits off the table. Thereafter, TSLA usually seems to enter a consolidation phase in the shape of a wedge before breaking out and moving higher.
Most recently, the breakout from the wedge was pretty gradual with the stock price hugging the 200-day MA before this recent surge after breaking out from previous ATH.
In the past 2 trading days, there seems to be a bit of buyer exhaustion setting with volume decreasing which might indicate a short-term peak.
Is Tesla’s high price justified?
That’s the million dollar question. Tesla is firing on all cylinders. The company is now profitable, has ample funding options, and growing production and revenues in excess of 50% annually.
However, Tesla is now trading at 400x trailing P/E and 26x P/S, which looks expensive by these metrics.
There are many analysts and YouTubers sharing their valuation models and estimates for Tesla stock, so there’s no shortage of opinions. According to Tipranks.com, the average analyst price target sits at $835.53 implying -31% downside. The range of price targets is also pretty large, ranging between $215 (huh?) to $1,300.
With Tesla growing so fast and things changing so quickly in the electric vehicle, autonomous driving, and renewable energy sectors, I think it’s difficult to determine with much accuracy how much TSLA stock price will be even in the next 12 months. In my opinion, any attempt to set a price target might be futile.
Whether you buy or continue to hold TSLA will depend on your conviction in Tesla’s growth story and trajectory. Do you believe that Tesla will be one of the most revolutionary companies, not only in the EV industry, but also the areas of energy generation and storage, autonomous driving, and artificial intelligence.
My game plan
Read my investment thesis on Tesla here.
For the long-term Family Portfolio, I made the mistake of trimming my position just before the breakout which is definitely painful when I think of the missed gains. I’m definitely not selling anymore TSLA from this portfolio, but I’m also hesitant to buy more at these prices especially after selling at a much lower price.
I find that the problem with trimming positions I believe in for the long-term for short-term gains makes it extremely difficult for me to continue averaging in at higher prices.
Subsequently, I also trimmed my TSLA position in my Personal Portfolio. As I explained above, I felt that TSLA might be reaching a short-term peak. I sold just enough to reduce my TSLA exposure to 90%. I’m not ready to have TSLA to take up more than 90% of the portfolio.
Going forward, this rally might still have legs to run. Previous surges seemed to range from 60-110% increases from the point of breakout.
However, I’m hoping for a pullback to the $900 level so I can start adding again.
To be clear, I’m far from advocating short-selling Tesla. Never bet against Elon Musk. I find that an extremely risky trade.
Are you a buyer or seller of Tesla stock at these levels?
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Disclosure: I’m still long TSLA
Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.