Tesla (NASDAQ: TSLA), despite bottoming out at $176.99 in June, hit a high of $422.01 during yesterday’s trading session – exceeding CEO Elon Musk’s hypothetical price point of $420, which he targeted with his notorious “funding secured” tweet:
“Am considering taking Tesla private at $420,” Musk said via Twitter on August 7, 2018.
“Funding secured.”
The tweet landed Tesla’s celebrity CEO in hot water with the SEC, which sought to punish Musk for committing securities fraud. Because he didn’t disclose the proper documentation before announcing the intent to take his company private, regulators sued Musk shortly after the tweet was made.
“This unjustified action by the SEC leaves me deeply saddened and disappointed,” said Musk in a statement.
“I have always taken action in the best interests of truth, transparency, and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
And though Musk avoided a full-blown trial, he was forced to pay a $20 million fine and step down as chairman. The out-of-court settlement certainly stung, but it amounted to nothing more than a slap on the wrist for Musk – a man worth roughly $23.6 billion.
Tesla, on the other hand, didn’t get off so scot-free. Plagued by layoffs, operational issues, and continued government inquiries, the electric automaker saw its share prices sink to a 2-year low. A particularly bad Q2 earnings report fell well below analyst estimates, as Tesla spent far more on fixed costs than expected.
The stock struggled to stay afloat over the next five months before Tesla released its shockingly strong Q3 earnings. Analysts were overly tough on Tesla in Q2 – something we observed back when Q2 earnings were released – and Q3’s numbers blew away consensus estimates.
On October 24th, the session after earnings, the stock gapped higher, registering a 17.67% gain on the day. Since then, Tesla’s risen like a phoenix from the ashes, gaining 40% in just 2 months.
And on December 23rd (yesterday), the mythical $420.00 price target was finally achieved – prompting a response from Musk who tweeted, “Whoa … the stock is so high lol,” followed by an image of TSLA’s daily price action.
Wall Street, however, wasn’t quite as enamored with TSLA’s recent gains. Morgan Stanley, in particular, is sticking by its $250 price target (40% off the stock’s current price) made earlier in the quarter.
“We are not bullish on Tesla longer term, especially as, over time, we believe Tesla could be perceived by the market more and more like a traditional auto OEM,” wrote Morgan Stanley analyst Adam Jonas.
“We are prepared for a potential surge in sentiment through 1H20 but question the sustainability.”
In some ways, Jonas is right. Tesla will eventually be viewed as a traditional automaker, and its stock will fluctuate based on earnings performance.
But for now, Tesla is a growth-stock through and through. Yes, strong Q3 earnings certainly launched its rally to $420, but they weren’t the singular cause. Investors see Tesla as a company with massive potential. Turning a profit at this stage, before Musk has had a chance to smooth out the rough edges, is a major sign that things are going very right for the electric carmaker.
Even after debuting the love-it or hate-it Cybertruck, which left plenty of TSLA bulls scratching their heads.
In the end, though, it might not matter. Because if Musk can produce another quarter of strong earnings, $420 might seem like a bargain.
Especially if he can avoid getting sued by regulators in the coming year.
