At the beginning of September, electric vehicle manufacturer Tesla Inc. (NASDAQ:TSLA) announced it would be issuing up to $5 Billion U.S. in common shares in a bid to spur growth. The company also hopes to continue the momentum it has generated with growing sales at a faster rate than analysts predicted.
Despite previous adamant declarations CEO Elon Musk that no additional capital would be needed to support the company’s operations, the cash flow Tesla has produced has not been enough to cover the company’s burgeoning capital needs for expansion. This announcement came as the company recently came off its stock split, with shares taking a few down days despite astronomical share price appreciation investors have benefited from in recent years.
Questions as to how sustainable Tesla’s stock price is in this environment, particularly with large institutional investors having to trim Tesla holdings to maintain maximum portfolio positions (of 5-10% typically), the higher Tesla’s stock price goes, the higher the downside risk investors face should the company miss analyst growth expectations in the future. As with other high flying sectors, any time valuations reach the stratosphere, investors ought to be careful. Determining whether or not Tesla’s stock price is sustainable right now is not a game I’d be willing to play, considering other high quality large cap technology options with much better valuations and fundamentals than Tesla today.
Invest wisely, my friends.
